PwC China Hit With Record $62 Million Penalty for Evergrande Auditing Scandal

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PwC China failed to exercise due diligence when auditing Hengda Real Estate’s 2019 and 2020 annual reports, a China Securities Regulatory Commission spokesperson said Friday. Photo: VCG

PwC China has been hit with a record penalty of 441 million yuan ($62 million), along with a six-month shutdown, for its fraudulent auditing work for the main Chinese mainland subsidiary of collapsed real estate giant China Evergrande Group.

PwC China failed to exercise due diligence when auditing Hengda Real Estate Group Co. Ltd.’s 2019 and 2020 annual reports and providing the property firm with bond issuance services, a spokesperson for the China Securities Regulatory Commission (CSRC) said in a Q&A Friday.

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PwC China received a record penalty of 441 million yuan ($62 million) and a six-month shutdown for fraudulent auditing of China Evergrande’s subsidiary.
The penalties include 325 million yuan from CSRC and 116 million yuan from MOF, leading to PwC China’s Guangzhou branch closure and revocation of CPA licenses.
Evergrande exaggerated its revenue and profits in 2019 and 2020, with PwC China issuing false clean audit reports, causing severe market repercussions.

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Who’s Who

PwC China: PwC China received a record penalty of 441 million yuan ($62 million) and a six-month suspension for fraudulent auditing of China Evergrande Group's Hengda Real Estate. They failed in due diligence for the 2019 and 2020 reports, leading to severe financial misstatements. The Ministry of Finance also fined PwC China 116 million yuan and revoked licenses of involved CPAs. This has damaged PwC China’s reputation, leading to contract terminations by major clients.

China Evergrande Group: China Evergrande Group is a collapsed real estate giant whose main Chinese subsidiary, Hengda Real Estate Group Co. Ltd., engaged in fraudulent financial activities. The company inflated its revenue and profits in 2019 and 2020 by booking sales in advance, significantly exaggerating its financial performance. This led to a $577 million fine from the CSRC for fraudulent bond issuance and breaking information disclosure rules.

Hengda Real Estate Group Co. Ltd.: Hengda Real Estate Group Co. Ltd. is the major Chinese mainland subsidiary of collapsed real estate giant China Evergrande Group. The company inflated its revenue and profits in 2019 and 2020 by booking sales in advance, exaggerating its revenue by 214 billion yuan in 2019 and 350 billion yuan in 2020, and its profits by 63% and 87% for the respective years.

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What Happened When

January 2024：: The Ministry of Finance (MOF) launched an investigation into PwC China.

May 2024：: The CSRC announced a $577 million fine on Hengda for fraudulent bond issuance and breaking information disclosure rules.

Friday, 2024-09-13：: The MOF imposed a 116 million yuan penalty on PwC China for its auditing work for Hengda in 2018.

Friday, 2024-09-13：: The CSRC issued a statement disclosing details of PwC China's discrepancies in audit work papers and improper procedures.

Friday, 2024-09-13：: The CSRC imposed a 325 million yuan penalty on PwC China for failing to exercise due diligence in auditing Hengda's 2019 and 2020 annual reports.