PricewaterhouseCoopers is going to face "teeth and thorns" from China. In a nutshell, that is how President Xi Jinping wants policies to be implemented in the People's Republic. According to Bloomberg, this could result in PwC's local unit losing its position as China Evergrande's auditor and facing fines of no less than one billion yuan ($138 million) as well as office bans. All financial intermediaries would be placed on notice by such a decision, while competitors are already profiting from its impending punishment.
As of 2023, PwC China was the leading international accounting company, auditing 107 A-share businesses, according to financial data provider Wind. The annual income of that business was around 900 million yuan. However, nearly 20 clients have recently cut their connections with the company, including $10 billion China Railway, $120 billion China Merchants Bank, and $250 billion PetroChina. More could come if and when PwC China draws censure.
An existing standard has been established by the China Securities Regulatory Commission (CSRC). Evergrande, which was formerly the largest homebuilder in the nation, was found to have exaggerated sales by $78 billion in 2019 and 2020. As a result, the business was fined 4.2 billion yuan on Friday. Representing one-fifth of bond profits raised by misleading data, that is the highest penalty that can be imposed.
However, auditors may face a penalty of up to five times their fees collected from the concerned client. From 2009 until 2023, PwC China earned approximately 270 million yuan from Evergrande, as reported by state-affiliated financial newswire Cailian.
This clarifies why the accounting company's penalties may end up exceeding the prior record of 212 million yuan, which was imposed by the Ministry of Finance on Deloitte Touche Tohmatsu last year. The firm was also forced to close its Beijing office for three months. It was due to audit flaws in its collaboration with China CITIC Financial Asset Management, formerly China Huarong, whose chair was removed in 2021 for receiving bribes.
Deloitte is currently one of the corporations acquiring some of the businesses and employees that have left its rival, indicating that quick recoveries may be conceivable.
However, PwC might have to contend with more offices closing for an extended period of time. If the CSRC's decision supports Evergrande's liquidators' allegations, it might potentially be subject to a devastating lawsuit. These would undermine PwC's chances of recuperation. Additionally, it would make a clear statement to banks, brokers, legal firms, and accountants that China's regulators have more bite than just bark.