PwC at Mercy of China’s Financial Storm

One of the world’s largest accounting firms, US-based PricewaterhouseCoopers (PwC), has found itself in the midst of a massive financial fraud investigation after Chinese construction industry giant Evergrande was accused of a $78 billion fraud. Chinese authorities are now scrutinizing the manner in which auditor PricewaterhouseCoopers handled Evergrande’s accounting practices.

Bloomberg news agency writes, citing “well-informed” Chinese sources, that “Chinese officials are in close confidential contact with some former PwC accountants who led the Evergrande audit.” At the moment, no decision on possible sanctions against the US auditor has been made.

Just this week, the China Securities Regulatory Commission (CSRC) fined Evergrande and the group’s president, Hui Ka Yan, who has been banned from capital markets for life and is currently under house arrest. The fines totaled $581.4 million and $7 million, respectively. They are accused of “accounting fraud” in the issuance of the bonds. The allegations are serious: at Hui’s request, Hengda Real Estate, the main “operating vehicle” of the Evergrande Group, “inflated” financial data in 2019-2020, defrauding investors and Chinese authorities.

The numbers are staggering: in two years, Evergrande’s sales were inflated by a total of $78.4 billion. Bonds were then issued based on this false data, which turned out to be a soap bubble. Evergrande has a $300 billion liability; it defaulted in December 2021. In January 2024, a Hong Kong court ordered the liquidation of the construction giant that turned out to be standing on clay feet.