By Xie Yu
Chinese regulators imposed a six-month business suspension and a fine of 441 million yuan ($62 million) on PwC's auditing unit in mainland China for its audit of troubled property developer China Evergrande Group. This penalty marks the toughest action ever taken against a Big Four accounting firm in China, shedding light on their role in auditing major Chinese companies.
Authorities have been investigating PwC's involvement in the accounting of Hengda Real Estate, Evergrande's mainland unit, following allegations of a $78 billion fraud spanning two years until 2020.
PwC network expressed disappointment in the audit work, stating that it fell below the expected standards. The Big Four auditing firms, including PwC, EY, Deloitte, and KPMG, dominate the auditing landscape in China, overseeing a significant portion of the country's key companies and financial institutions.
Key Insights on Big Four's Activities in China
* THE BIG FOUR AUDITING FIRMS IN CHINA
The Big Four firms hold the top positions in the auditing industry in China, with a significant market share. They audit most of China's largest state-owned enterprises and financial institutions, indicating their crucial role in the country's financial ecosystem.
* HOW HAVE THE BIG FOUR ATTRACTED CHINA BUSINESS?
These firms have built a strong reputation in China based on their workforce, experience, and global resources, giving them a competitive edge over local firms. Hiring the Big Four as auditors can potentially reduce financing costs for major Chinese companies.
* PREVIOUS REGULATORY ACTION AGAINST BIG FOUR IN CHINA
Deloitte faced a substantial fine in 2023 for lapses in assessing the asset quality of a Chinese company, highlighting the regulatory scrutiny faced by Big Four firms operating in China.
Overall, the recent penalty on PwC's auditing unit underscores the importance of regulatory compliance and accountability in the auditing industry, which can impact the financial stability and reputation of major companies in China.