China Puts PwC in the Punishment Corner For Six Months and Confiscates ‘Illegal Gains’

Well we knew this was going to happen. Various media outlets are reporting that China has banned PwC Zhong Tian (a.k.a. PwC China) from signing off on accounts for six months in relation to their sloppy work on collapsed developer Evergrande. See earlier: China’s About to Dropkick PwC Right in the Wallet

Wrote AP:

China’s Ministry of Finance said in a statement Friday that it was imposing 116 million yuan ($16.35 million) in fines and confiscation of illegal gains on PwC Zhong Tian, also known as PwC China, as well as a six-month business suspension, revocation of PwC’s Guangzhou branch and an administrative warning.

In a separate action, the China Securities Regulatory Commission punished them to the tune of 325 million yuan ($45.8 million). This brings them to a grand total of a little more than $62 million yeeted from their revenue of approximately $1.1 billion (2022 revenue), so a 5.6% hit.

To date, this is the worst punishment a Big 4 firm has received in China. #1 in something yet again, PwC! You go.

In a statement addressing the ban, PwC said they are “disappointed” by PwC’s audit work “which fell unacceptably below the standards we expect of member firms of the PwC network.” They also threw some people under the bus:

PwC China has a long history of high quality audits and we do not believe that the behaviour of a very small number of engagement team members is representative of the work of the vast majority of PwC China’s 18,000 professionals.

“The work performed by PwC Zhong Tian’s Hengda audit team fell well below our high expectations and was completely unacceptable,” said PwC Global Chair Mohamed Kande. “It is not representative of what we stand for as a network and there is no room for this at PwC. That is why, following a thorough investigation, we ensured that actions were taken to hold those responsible to account and a comprehensive remediation programme will build a stronger PwC China firm for the future. China remains an important part of the PwC network and I remain confident in the China firm’s partners and staff as we work together to rebuild trust with stakeholders.”

PwC China and its Governance Board, with support from the PwC network, took a few accountability and remedial actions to address this matter. They:

• Terminated the employment of 6 partners and exited 5 staff directly involved in the Hengda audit work [Ed. note: Hengda is the principal subsidiary of China Evergrande Group, a listed company in Hong Kong.]
• Have taken accountability actions and commenced the process of issuing financial penalties for current and former firm leadership who were responsible for the business.

Daniel Li agreed to step down as PwC China’s Territory Senior Partner (TSP) given his former responsibilities as PwC China’s Head of Assurance. He will continue to support the business in his role as Chief Accountant of PwC Zhong Tian. Hemione Hudson, PwC’s Global Risk & Regulatory Leader, has been appointed to serve as the interim TSP and will relocate once the steps required to effect her transfer to PwC China have been completed.

Kevin Wang, Head of Assurance, will have an elevated role leading the audit and assurance business for PwC China.

When FT reported on the expected ban last month, they said PwC “assured clients that staff will keep working during the suspension and will be able to certify the audit opinions on their 2024 annual reports once the ban is lifted in March.”