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Hong Kong’s audit regulator said it would launch a fresh probe into PwC over an apparent whistleblower report that accused it of mis-steps in auditing defaulted Chinese developer Evergrande, intensifying pressure on the Big Four firm.
The open letter, signed by “a group of PwC partners”, began to circulate in Chinese media last weekend. It cited “significant concerns regarding potential alleged deficiencies” in PwC’s systems of quality management and the quality of its audit work for Evergrande, the Chinese territory’s Accounting and Financial Reporting Council said on Friday.
“Given the gravity of these allegations and the necessity to safeguard the interests of the investing public . . . the AFRC is obliged to initiate an investigation,” its statement said.
The anonymous letter, written in Chinese, accused PwC of failing to establish and maintain an effective system of quality control to ensure audit quality and compliance with professional standards, the AFRC said. The Financial Times has not been able to independently determine the provenance of the letter.
The purported partner group also accused PwC of failing to “adhere to professional standards in respect of the acceptance and continuance of its client relationship” with Evergrande, the AFRC added, as well as failing to assign “appropriate personnel to key positions” responsible for quality management.
Evergrande, the world’s most indebted property developer, defaulted in late 2021 with more than $300bn in liabilities highlighting China’s property sector crisis and liquidity crunch. Its founder, Hui Ka Yan, was placed under “mandatory measures” on suspicion of involvement in unspecified crimes, according to a company statement in September.
PwC, which checked Evergrande’s books for more than a decade, on Tuesday denounced the anonymous open letter, which accused its China leadership of mis-steps in auditing Evergrande, but said it would “fully investigate” the matter.
“We believe the letter contains inaccurate statements and false allegations concerning PwC and certain of our partners. The inaccurate statements and false allegations could tarnish PwC’s reputation and infringe our legal rights,” a spokesperson for the firm said.
Evergrande and PwC have been investigated by Hong Kong’s audit regulator since 2021 over the developer’s 2020 accounts. In March this year, the China Securities Regulatory Commission accused Evergrande’s mainland business and its founder of inflating revenues by $78bn over its 2019 and 2020 statements.
PwC was Evergrande’s auditor when it listed in 2009, and it resigned from the role in 2023. Hengda Real Estate, Evergrande’s mainland business, was also audited by PwC Zhong Tian, a mainland entity affiliated to PwC’s network.
PwC China said it was aware of the AFRC statement and would continue to co-operate with regulators.
A Hong Kong court in January ordered the winding up of Evergrande’s Hong Kong-listed entity after the developer was unable to agree on an offshore restructuring plan with creditors. The implications for the developer’s mainland assets remain uncertain under the separate legal systems.
The FT reported in February that Alvarez & Marsal, the Evergrande liquidator appointed by a Hong Kong court, was preparing for a potential lawsuit against PwC that could lead to it facing a high-profile negligence claim.
Additional reporting by Cheng Leng in Hong Kong
