PwC agrees to pay US$166 million to close Evergrande probe in HK

[HONG KONG] PricewaterhouseCoopers agreed to pay US$166 million in compensation and fines in Hong Kong over its auditing work of China Evergrande Group.  

The firm was also suspended for six months from accepting, performing, or issuing reports in respect to new clients of listed companies, according to the Accounting and Financial Reporting Council. It was fined HK$300 million (S$48.8 million). 

In a separate agreement with the Securities and Futures Commission, the firm agreed to pay HK$1 billion. The cash will be set aside to compensate eligible independent minority shareholders of China Evergrande, according to a statement from the SFC.  

The SFC and PwC HK also “agreed that the matter will be fully and finally resolved without admission of liability, and that the SFC will take no further action against PwC HK, provided that PwC HK fulfills the terms of the agreement,” the regulator said.

The measures come as the firm attempts to rebuild in the wake of Beijing’s earlier record fine over its audit work on China Evergrande. That triggered an exodus of state‑owned enterprise clients, major Chinese companies and even Hong Kong regulators, along with staff departures. 

PwC China, which covers Hong Kong, audited Evergrande, while its mainland partnership, known as PwC Zhong Tian, worked with Hengda Real Estate Group, Evergrande’s mainland unit. PwC was Evergrande’s auditor for more than a decade until it resigned in January 2023, due to what the developer said were audit-related disagreements. While Evergrande is based in China, it’s regulated in Hong Kong because its stock used to trade in the financial hub.

The regulatory climate has shifted significantly following the collapse of China Evergrande Group. Its founder, Hui Ka Yan, pleaded guilty to bribery, embezzlement, and fraud in April. In 2024, Beijing accused the developer of inflating revenue by more than 560 billion yuan (S$104.5 billion), in one of the nation’s biggest accounting frauds. 

PwC was subsequently fined 441 million yuan and suspended in China for six months. PwC “turned a blind eye” to Evergrande’s fraud, the securities regulator has said. 

Audit firms typically pay regulatory fines out of their own reserves because professional indemnity insurance generally doesn’t cover these penalties. Partners can be asked to contribute the rest, based on each firm’s policies. These costs can be higher in Hong Kong since PwC’s partnership there was registered with unlimited liability, whereas China’s was limited.

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Meanwhile, a lawsuit by China Evergrande’s liquidators seeking to claw back funds from PwC is set to reach its first public court hearing in May, nearly two years after it was filed. BLOOMBERG