PwC Facing Expulsion in China Replaces Chief... Moves to Manage Evergrande Crisis

PricewaterhouseCoopers (PwC), which faced a massive fine for poor audit practices related to real estate developer Evergrande's accounting irregularities, has replaced its China regional head in an effort to revitalize its image.

According to the China Realtime Finance News on the 3rd, PwC announced the appointment of Li Dan as the new chairman for the Asia-Pacific and China region. Chairman Li graduated from Shanghai University of Finance and Economics and has over 30 years of experience working at PwC. Former chairman Zhao Baiji stepped down following internal whistleblowing that held him ultimately responsible for the recent audit failure involving Evergrande.

[Image source=Reuters Yonhap News]

Earlier, PwC was fined 1 billion yuan (approximately 189.1 billion KRW) for poor audit practices after uncovering accounting fraud and financial scams amounting to $78 billion (about 107 trillion KRW) related to Evergrande.

Earlier this year, Chinese authorities imposed a fine of 4.18 billion yuan on the Evergrande Group for financial fraud, revealing that Evergrande, the company’s main business unit, had overstated its revenue by 564.9 billion yuan over two years until 2020. PwC had been responsible for auditing Evergrande’s accounts for over a decade and was the auditor during the period of accounting fraud.

Following the revelations, PwC received termination notices from major clients including China Telecom, Shanghai Electric, Bank of China, PetroChina, China Insurance, Shanghai Pharmaceuticals, China Railway, and the People's Insurance Company of China (PICC). The audit fees from these eight companies alone amounted to 356 million yuan, representing about 40% of PwC’s audit fee revenue last year.

However, some companies have decided to renew their cooperation with PwC. Shanghai Automotive Industry Corporation (SAIC) approved the re-contracting of PwC for auditing at its shareholders’ meeting on the 28th of last month. The audit fee is expected to be below 4 million yuan. China Minsheng Bank also renewed its audit contract worth 9.89 million yuan. Additionally, Huayue Automotive, Shanghai Jahwa, Longi Green Energy, Haili, Geckouyi, and Shujingfang extended their audit contracts through shareholders’ meetings.