China to impose six-month business ban on PwC over its Evergrande audit

China is likely to impose a six-month business ban on PwC over its audit of real estate giant Evergrande, according to a Financial Times report. PwC China has reportedly told clients it expects authorities to hit it with a six-month business ban for its faulty audit of collapsed property developer Evergrande.

The action against PwC comes after China’s securities regulator in March said Evergrande had inflated its mainland revenues by almost $80 billion in the two years before the developer defaulted on its debts in 2021. This is despite PwC’s China unit giving the accounts a clean bill of health.

The business ban may be potentially be accompanied by a substantial fine. It comes as Beijing steps up scrutiny over the role played by auditors in financial scandals. China’s crisis-hit property sector once contributed around a quarter of the country’s GDP.

Impact of PwC ban
 

The ban would prevent PwC China from signing off on financial results and initial public offerings and from conducting other regulated activities, according to the report. This will be a big financial hit, particularly as PwC China was the country’s largest accounting firm by revenue in 2022, bringing in $1.1 billion.
 

However, the accounting firm has assured clients that staff will keep working during the suspension and certify the audit opinions on their 2024 annual reports once the ban is lifted.

PwC China: Financial health
 

PwC’s China unit has already lost at least two-thirds of its accounting revenues from mainland-listed clients this year since its Evergrande audit failure. Even the Bank of China, which is using PwC for its midterm report, has switched to EY for its annual audit.

In the wake of this, PwC China is actively seeking to reassure its biggest internationally listed clients -- including Chinese internet giants Alibaba and Tencent, according to Financial Times sources. PwC China is also encouraging some clients to sign contracts for future services in 2025.

Meanwhile, the loss of clients and proposed penalties has prompted layoffs across PwC’s branches in China. The layoffs are aimed at cutting costs.

China has fined Deloitte too
 

Earlier, PwC’s rival Deloitte was also fined for “serious audit deficiencies” in its work for China Huarong Asset Management. Deloitte paid a $31 million fine and its operations in Beijing were suspended for three months last year.

Such punishments cause significant disruption as many mainland-listed clients are barred from working with an auditor that has been sanctioned by the authorities within three years.