China probes PWC role in Evergrande fraud
Chinese authorities are examining the role of Pricewaterhousecoopers LLP in China Evergrande Group’s accounting practices after the developer was accused of a $78 billion fraud, ramping up pressure on the global accounting giant that audited a slew of developers before the sector’s meltdown.
The country’s securities regulator this week accused Evergrande’s main onshore subsidiary Hengda Real Estate Group of recognizing sales in advance and massively overstating its revenue in the two years through 2020, prior to Evergrande’s default.
Chinese officials are now looking into PWC as they continue their probes of the developer’s founder Hui Ka Yan, according to people familiar with the matter. They are in contact with some former PWC accountants who handled Evergrande’s audit, one of the people said, asking not to be identified discussing a private matter. No decision has been made on whether to penalize the auditor, said the people, adding that officials are still investigating other suspected crimes of Hui, who was detained last year. PWC declined to comment.
Beijing’s fresh revelations of Evergrande’s fraud come at a difficult time for PWC, which is dealing with the fallout of scandals in other parts of its global network, and has cut jobs from
the UK to Canada. The firm’s practice in Australia — which is also slashing jobs — came under fire for leaking confidential government tax plans to clients. Pwc’s UK arm was hit with a £5.6 million fine last year for failures in its work on Babcock International Group Plc’s books. “There are serious questions about Pwc’s role in the Evergrande fraud, specifically what it knew about the improper revenue recognition,” said Nigel Stevenson, an analyst at accounting research firm GMT Research Ltd. in Hong Kong.