Hong Kong regulator partially clears PwC of malpractice claim in Evergrande's fraud case
July 10, 2024
Hong Kong's accounting regulator said there was no evidence to support allegations made by whistle-blowers against PwC, which has been caught in a slew of scandals tied to the now-liquidated China Evergrande Group.
The Accounting and Financial Reporting Council (AFRC) said in a statement on Wednesday that after examining the internal investigation carried out by PwC, it has determined that the evidence does not support three of the allegations concerning the auditing firm's quality controls.
The AFRC said it found no evidence for the allegations that PwC had failed to establish and maintain effective quality controls, failed to adhere to professional standards regarding its client relationship with Evergrande, and failed to assign appropriate personnel to key positions.
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The allegations were made in an anonymous whistle-blower letter that circulated on social media in April. PwC refuted the accusations in the letter.
However, the regulator noted that a separate investigation into the quality of PwC's audit work related to Evergrande is still under way.
"The AFRC has made this announcement in the light of the gravity of the public allegations, the potential impact on public confidence in the integrity of the accounting profession and the public interest involved," the statement said.
The statement comes after more than 30 publicly-listed companies in mainland China, including major conglomerates such as PetroChina and Bank of China, have terminated their contracts with the auditor over concerns of its potential involvement in Evergrande's financial fraud.
Evergrande, which has been ordered to undergo liquidation by a Hong Kong court, had inflated its sales by US$78 billion in the years leading up to its downfall in 2021, China's securities regulator said in March.
In a rare vote of confidence, tech giant Alibaba Group Holding, which owns the Post, said last week that it plans to appoint PwC as its auditor until 2025. Alibaba has paid PwC a total of 148 million yuan (US$20.3 million) in auditing fees in the financial year 2024, an increase of 26 per cent, according to the firm's annual report.
Nevertheless, the loss of major clients is taking a toll on PwC. Bloomberg reported on Wednesday that the auditor is laying off "at least 100" employees across various divisions and locations in China due to a downturn in revenue prospects.
Meanwhile, in light of Evergrande's collapse and a nationwide property crisis, Chinese authorities are dialling up their scrutiny of financial "intermediaries", with a primary focus on the "big four" auditing firms - Deloitte, EY, PwC and KPMG, Reuters reported on Wednesday.
[South China Morning Post]
