PwC is also dealing with the fallout of scandals in other parts of its global network.
SHANGHAI - The Chinese authorities are examining the role of PricewaterhouseCoopers in China Evergrande Group’s accounting practices after the developer was accused of a US$78 billion fraud, ramping up pressure on the global accounting giant that audited a slew of developers before the sector’s meltdown.
Beijing’s fresh revelations of Evergrande’s fraud come at a difficult time for PwC, which is dealing with the fallout of scandals in other parts of its global network, and has cut jobs from Britain to Canada. The firm’s practice in Australia – which is also slashing jobs – came under fire for leaking confidential government tax plans to clients. PwC’s British arm was hit with a £5.6 million fine in 2023 for failures in its work on Babcock International Group’s books.
By inflating revenue, Hengda also overstated a total of 91.9 billion yuan in profit, or more than three-quarters of its reported income between 2019 and 2020, according to the China Securities Regulatory Commission. That is about 20 times the inflated profit at Enron’s 2001 scandal, which ultimately brought down its auditor Arthur Andersen.
The regulator’s fine of 4.18 billion yuan on Hengda also means Evergrande will have even less money to pay off its creditors. The Chinese developer was saddled with about US$332 billion in liabilities as of June 2023. Among the Big Four accounting firms, PwC was one of the most commonly used by Chinese real estate firms listed in Hong Kong, according to data compiled by Bloomberg. It audited the books of some of the nation’s largest developers, including Country Garden Holdings and Sunac China Holdings, before they also defaulted on their debt.