PwC Hong Kong Next in Firing Line Over Evergrande Scandal

By Wang Juanjuan, Cheng Siwei and Qing Na

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PwC’s office in Guangzhou, South China’s Guangdong province. Photo: VCG

Penalties and lawsuits loom over PricewaterhouseCoopers’ (PwC) Hong Kong affiliate after China slapped its mainland counterpart with a record penalty last week for its fraudulent accounting for Hengda Real Estate Group Co. Ltd., the major subsidiary of the embattled China Evergrande Group.

Following Chinese regulators’ announcement of a record 441 million yuan ($62 million) penalty against PricewaterhouseCoopers Zhong Tian LLP (PwC Zhong Tian), the Hong Kong Accounting and Financial Reporting Council (AFRC) said in a Friday statement that “the AFRC’s concurrent independent investigation into the audits of China Evergrande Group by PricewaterhouseCoopers in Hong Kong is in progress.”

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PwC Hong Kong faces penalties and lawsuits related to fraudulent accounting for Hengda, a subsidiary of China Evergrande Group.
China imposed a 441 million yuan ($62 million) fine on PwC Zhong Tian, while Hong Kong regulators continue their investigation.
PwC China appointed Hemione Hudson as interim territory senior partner and fired audit staff involved, impacting their ability to bid for state-owned contracts for three years.

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Who’s Who

PricewaterhouseCoopers Zhong Tian LLP: PricewaterhouseCoopers Zhong Tian LLP (PwC Zhong Tian) is facing a record 441 million yuan ($62 million) penalty from Chinese regulators for fraudulent accounting for Hengda Real Estate Group Co. Ltd., a subsidiary of China Evergrande Group. This penalty restricts PwC Zhong Tian from bidding on state-owned enterprise projects for three years. In response, PwC has dismissed several partners and staff involved in the audits and is focusing on retaining multinational clients despite rising communication costs.

PwC Hong Kong: PwC Hong Kong faces potential regulatory penalties and significant civil compensation claims from Evergrande’s investors, which could be devastating for the affiliate. Evergrande's liquidators have already launched court proceedings against PwC Hong Kong. PwC has appointed Hemione Hudson as the interim territory senior partner of PwC China and fired six partners along with five staff members involved in Hengda’s audit.

Hengda Real Estate Group Co. Ltd.: Hengda Real Estate Group Co. Ltd. is a major subsidiary of China Evergrande Group, which has been embroiled in financial troubles. The company was involved in fraudulent accounting practices, leading to a record penalty of 441 million yuan ($62 million) imposed on PricewaterhouseCoopers Zhong Tian LLP by Chinese regulators.

China Evergrande Group: China Evergrande Group is an embattled property developer whose major subsidiary, Hengda Real Estate Group Co. Ltd., was involved in fraudulent accounting, leading to significant penalties. Evergrande received a liquidation order from a Hong Kong court in January, and its liquidators have launched court proceedings against PwC Hong Kong.

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What Happened When

Last week：: China slapped its mainland counterpart, PricewaterhouseCoopers Zhong Tian LLP, with a record penalty of 441 million yuan for its fraudulent accounting for Hengda Real Estate Group Co. Ltd.

By a Friday statement：: The Hong Kong Accounting and Financial Reporting Council (AFRC) said that 'the AFRC’s concurrent independent investigation into the audits of China Evergrande Group by PricewaterhouseCoopers in Hong Kong is in progress.'