Pwc’s audit of Evergrande under scrutiny

HONG Kong’s accounting regulator has launched an inquiry into Pwc’s most recent audit of Evergrande, the world’s most indebted property developer.

The state’s Financial Reporting Council (FRC) cited concerns about the high levels of debt on Evergrande’s balance sheet. It added that the company’s cash reserves did not cover its liabilities, raising questions over whether it should have been given a clean bill of health.

It came as China’s central bank insisted that risks to the financial system stemming from the developer’s struggles are “controllable” and unlikely to spread.

The watchdog said it had identified “questions about the adequacy of reporting on going concern” in Evergrande’s accounts for 2020 and the six months to the end of June this year.

It also said it would consider whether Pwc’s audit of Evergrande’s accounts for 2020 “complied with the applicable auditing standards”.

PWC, which audits Evergrande from Hong Kong, signed off the company’s accounts last year as a going concern, which means the firm has necessary resources to continue operating for at least a year.

However, in its half-year results in August, Evergrande said it risked default- ing on its debt.

The regulator said that while the property giant admitted to liquidity issues, it “made no explicit state- ment” as to whether “material going concern uncertainties existed” in its half-year or full-year reports.

PWC has audited Evergrande since 2009, and has received fees worth $42m (£30.5m), the Financial Times reported.

Meanwhile, Evergrande’s plans to sell its Hong Kong headquarters for $1.7bn collapsed after a Chinese stateowned developer pulled out of the deal.

PWC declined to comment.