PwC loses largest China client in wake of Evergrande storm

PricewaterhouseCoopers LLP (PwC) has lost its largest client in the Chinese mainland amid a wave of client departures triggered by a regulatory probe into the auditing firm’s work with scandal-hit developer China Evergrande Group.

Bank of China, one of the country’s biggest four state lenders, said it will hire EY as its auditor for 2024, replacing PwC China. The bank will also hire domestic audit firm BDO China Shu Lun Pan CPAs LLP as the secondary auditor, Caixin learned.

Bank of China joined a growing list of Chinese companies terminating contracts with PwC as the collapse of China Evergrande put the auditor’s work in doubt.

In June, two state-owned giants, PetroChina and China Railway Group, said they had decided to stop working with PwC, following five other companies that had done the same the previous month. Over the past two years dozens of firms have either dropped PwC as their auditor or canceled plans to hire the firm.

In 2023, Bank of China paid PwC 193 million yuan ($27 million) in auditing fees, marking the third consecutive year of using its services. In March, the bank announced plans to reappoint PwC as its auditor for 2024. However, according to a June filing, the bank later revised its decision, opting to retain PwC only for its mid-term report while seeking new auditors for the future.

The wave of contract terminations comes as China’s securities regulator examines PwC’s auditing role for China Evergrande. In June, the China Securities Regulatory Commission announced a $577 million fine on China Evergrande’s major domestic subsidiary, Hengda Real Estate Group, for fraudulent bond issuance and breaking information disclosure rules.

Regulators found that Hengda had inflated its revenue and profits in 2019 and 2020 by recognizing sales in advance. The company was alleged to have exaggerated its 2019 revenue by 214 billion yuan and again by 350 billion yuan the next year. The inflated figures accounted for half of Hengda’s total revenue in 2019, and 79% in 2020, according to the statement. Hengda also inflated its profits by 63% and 87% in 2019 and 2020.

The CSRC said in June that relevant intermediary agencies were under investigation. Sources close to the matter told Caixin that the decisions on penalties for PwC are likely to be announced soon.

In August, China Evergrande’s liquidators launched court proceedings against PwC, criticizing it for “negligence” and “misrepresentation” in its auditing work.

After Bank of China’s auditor change, three of the country’s six largest state banks have hired EY as their auditor, while two are currently using KPMG. The Postal Saving Bank of China Co. Ltd., which is set to announce a new auditor soon, is likely to appoint KPMG to replace Deloitte as it has reached its maximum hiring duration, sources said.

Chinese rules stipulate that state-owned firms should not employ the same auditor for more than eight consecutive years. MDT/Caixin