Hong Kong regulators fine PwC $166M over China Evergrande audit

HONG KONG — PwC, one of the world’s largest accounting firms, is paying HK$1.3 billion in fines and damages in Hong Kong over its audit work for Evergrande, the failed Chinese property developer that reportedly overstated its revenues.

Hong Kong’s accounting regulator on Thursday also announced that PwC had been banned from working for new clients for six months and said it had issued a public reprimand to two of its former partners for misconduct and fined each of them HK$5 million.

China Evergrande, one of China’s largest real estate developers and once seen as “too big to fail,” defaulted in 2021, becoming the world’s most indebted developer with liabilities of nearly $300 billion. Its rapid collapse was the most prominent case of failure in China’s real estate sector, which was plunged into a liquidity crisis after authorities cracked down on overindebtedness in the sector as many other developers also defaulted or entered into restructuring.

The real estate collapse in China has not yet fully recovered; This has put pressure on house prices across the country and affected consumption and investment sentiment, negatively impacting China’s overall economic growth.

In 2024, PwC was fined 441 million yuan by authorities in mainland China for its Evergrande audit. Chinese authorities also imposed a six-month ban on the accounting firm for “inaccurate” conclusions in audit reports on Evergrande and “serious flaws” in its audit procedures.

Hong Kong’s Securities and Futures Commission said on Thursday it had investigated PwC’s work on Evergrande’s 2019 and 2020 financial statements and found its annual revenues and profits were “grossly overstated”.

It was stated that Evergrande manipulated annual revenue and profits by “prematurely recognizing revenue from property sales before the properties were completed and delivered to buyers.” Revenues were said to have been overstated by approximately 564 billion yuan over two years, after Chinese authorities reached a similar conclusion when they imposed a fine and ban on PwC in September 2024.

The Hong Kong commission also said PwC had “serious breaches” of its professional duties. It was stated that it had reached an agreement with PwC under which PwC would allocate HK$1 billion as compensation to Evergrande’s minority shareholders, without the firm’s admission of liability.

Hong Kong’s accounting regulator, the Accounting and Financial Reporting Council, said in a separate statement that PwC’s audit deficiencies over Evergrande were “particularly serious” and that the accounting firm “knowingly authorized” unsupported or unjustified adjustments to financial statements.

“We acknowledge that the work on the Evergrande audits fell well below our high expectations and the expectations of our stakeholders,” PwC Hong Kong said in a statement on Thursday. he said. “Resolving these regulatory issues is an important step for the firm.”

PwC had lost dozens of clients and most of its employees following Evergrande’s collapse and in the months after China ordered Evergrande to be liquidated by a Hong Kong court in 2024. China Evergrande’s liquidators were also separately taking legal action against PwC in Hong Kong in a bid to recover what they could for creditors.

Evergrande founder Hui Ka Yan, once one of Asia’s richest people, pleaded guilty to charges including fraud and bribery in a mainland Chinese court this month after being detained in China.

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