One of the four largest accounting firms in the world, PricewaterhouseCoopers ( PwC ), is expected to pay a fine of at least 1 billion yuan ( US$ 38 million ) in China as a result of its allegations that it has been overlooking misconduct by the collapsed China Evergrande Group for more than a decade.
The accountant will also have some of its native activities in China suspended, Bloomberg reported on Thursday, citing people familiar with the situation.
According to the report, China’s Ministry of Finance does release the punishments for PwC as soon as this year.  ,
In order to safeguard their clients ‘ stock and bond investors, accountants have a primary responsibility to check whether the financial statements of their customers contain false and misleading statements.
Since auditors are paid for their work from their customers, they may be drawn to ignore the lawyer’s errors and avoid following the standard code of rules. This is why the accounting industry has established guidelines for accountants to adhere to.
If a monetary statement provides accurate numbers, an accountant can give a standard unqualified mind, or” clean mind”, so buyers can trust it. An auditor does provide a competent opinion and notify the investors if a financial statement contains significant errors or omissions. An auditor may stop auditing a dangerous financial statement in the worst cases.
‘ Clear thoughts ‘
PwC had served as Evergrande’s accountant for 14 times between 2009 and 2023. It had consistently stated incompetent opinions regarding Evergrande’s financial statements throughout the years, implying that it believed that each statement provided a true and fair view and adhered to all appropriate regulations, including valid law.
Before Evergrande’s failures were reported by the media in August 2021, PwC also gave” fresh ideas” to the bank’s 2020 financial statement.
According to a Guangdong-based journalist using the pen brand” Red- orange- white Tulips,” who published an article on February 22 and received an inspection fee of 54 million yuan from Evergrande in 2020, PwC was given the opportunity to audit the company for the first time.
He claims that Evergrande and its subsidiaries paid Evergrande and its affiliates in exchange for inspection costs of about 400 million yuan between 2009 and 2023.  ,
PwC failed to do the accounting function for Evergrande’s 2021 and 2022 fiscal claims. It held the property developer accountable for failing to give it the data it needed.
It resigned from its place as Evergrande’s accountant in January 2023.
Evergrande released its interrupted quarterly results for 2021 and 2022, which Prism Hong Kong and Shanghai Limited audited in July.  ,
Evergrande said it lost a combined 803 billion yuan in 2021 and 2022. Its overall responsibilities totaled 2.44 trillion yuan at the end of 2022, up from 687.7 billion yuan at the time of the statement.
Evergrande’s scam
On March 18, the China Securities Regulatory Commission ( CSRC ) slapped fines worth 4.18 billion yuan and 47 million yuan on Evergrande and its founder Hui Ka- yan, respectively.
It said the agency’s annual reports in 2019 and 2020 contained misleading information. Evergrande used these monthly accounts to issue securities and raise money, according to it as a scam.
Some Chinese critics have since predicted that PwC will face charges and fines for failing to fix the issues in Evergrande’s financial statements.  ,
In early April, an opened letter written by” some Corporate partners” with the name” Who brought PwC into the fire pit of Evergrande”? was frequently viewed on social media.  ,
The letter said Raymund Chao, Asia Pacific and China Chairman, PwC China, and his team may be held accountable for overlooking the difficulties in Evergrande’s financial statements.  ,
It claimed that some older PwC professionals had suggested the accounting firm cease providing Evergrande with services in 2014 but Chao insisted on keeping the clientele.
PwC stated in a speech on April 16 that the empty letter made false claims and damaged the reputation of the accounting firm. It stated that it had alerted the police to the situation and may reserve the right to file a lawsuit against those who fabricate, spread, and conceal misleading information.
The open letter, or so-called whistle-blower report, raised serious questions about potential alleged shortcomings in PwC’s systems of quality management and the quality of Evergrande’s audits, and Hong Kong’s Accounting and Financial Reporting Council ( AFRC ) announced on April 19 that it had launched an investigation.
In October 2021, the AFRC launched investigations into Evergrande’s financial claims for 2020 and the first quarter of 2021, and even PwC’s assessment statement for Evergrande’s 2020 quarterly results.  ,
If PwC broke any professional standards, the AFRC will look into it.
Impact on PwC
Meanwhile, China has decided to penalize PwC for having given” clean opinions” to Evergrande’s inaccurate financial statements.
As dozens of the accounting firm’s Chinese clients have chosen to use other auditors, the penalties may have a long-lasting effect on PwC.  ,
PwC would retire as its auditor after the company’s annual general meeting on Thursday, according to a stock exchange filing from the Hong Kong-listed Kunlun Energy, formerly CNPC Limited. According to the statement, the decision was made following discussion with PwC regarding” the most recent regulatory issues relating to the auditing industry.”
China Taiping Insurance Holdings stated prior to this that it would appoint KPMG as its auditor in place of PwC. Ernst &, Young was chosen to replace PwC by China Merchants Bank Co. China Railway Group, China Electronics Huada Technology Co., and People’s Insurance Co.   are some of the other companies that have changed auditors.
Read: Hong Kong court orders Evergrande to liquidate
Follow Jeff Pao on Twitter at , @jeffpao3