PwC faces defections by Hong Kong, mainland China clients amid concerns about China Evergrande accusations

China Merchants Port Group joins at least four other large corporations opting out of working with the auditing firm in the last month
PwC’s troubles have worsened since a letter from whistle-blowers in April alleged it ‘turned a blind eye’ to developer’s misconduct

Accounting and auditing

Yuke Xiein Beijing

Published: 9:00pm, 29 May 2024

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Shenzhen-listed conglomerate China Merchants Port Group has joined at least four other large corporations that have terminated contracts with auditing firm PricewaterhouseCoopers (PwC) in the last month amid concerns around possible malpractice tied to insolvent property developer China Evergrande.

The Hong Kong headquartered port operator and shipping company said in a Wednesday stock exchange filing that its shareholders have decided to retract a proposal to hire PwC as its auditor for the year, citing “precautionary principles”.

Top retail lender China Merchants Bank, state-backed construction company China Railway Group, Shenzhen-listed Mindray Bio-Medical Electronics and Shanghai-listed Eastroc Super Drink have also scrapped plans to hire or ended contracts with the auditor this month, according to exchange filings.

PwC’s troubles have worsened since a letter from whistle-blowers in April alleged that the firm’s mainland China and Hong Kong branches “turned a blind eye” for more than a decade to the misconduct of property giant China Evergrande, which was ordered by a Hong Kong high court to liquidate in January.

The US firm vehemently denied the allegations and said it was taking measures to investigate the matter. Regulators in mainland China and Hong Kong also began looking into PwC’s practices tied to Evergrande.

PwC declined to comment for this article.

On May 27, China Merchants Bank announced it was replacing PwC with EY’s mainland China and Hong Kong subsidiaries. China Railway Group said on May 25 it had replaced PwC with Deloitte, noting, however, that the reason for the change was its “business operation, development needs, and holistic auditing needs”.

Evergrande, the world’s most indebted developer with more than US$300 billion in total liabilities, inflated its sales by 564 billion yuan (US$79.3 billion) and its profits by 92 billion yuan in the years leading to its downfall in 2021, the China Securities Regulatory Commission said in March.

The watchdog also imposed a 47 million yuan fine on Evergrande founder Hui Ka-yan and barred him from participating in the country’s financial markets for life.

A China Evergrande sign is seen near residential buildings at a residential complex in Beijing on September 27, 2023. Photo: Reuters

The China businesses of US-linked auditors have taken a hit since Beijing began tightening rules last year around cross-border auditing work that involved cybersecurity. Last January, the finance ministry and other government entities also urged state-owned firms to phase out their contracts with PwC, Deloitte, EY, and KPMG, known collectively as the “big four” accounting firms.

PwC has seen other scandals in recent months. In March, PwC Australia had to cut jobs as part of a major restructuring after a former partner leaked confidential documents in a serious conflict of interest. In December, the company’s affiliates in mainland China and Hong Kong had to pay a combined fine of close to US$8 million for auditing failures tied to US-listed Chinese companies.

Additional reporting by Zhang Shidong

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