PwC, one of the world’s biggest accounting firms, is paying HK$1.3 billion ($166 million) in fines and compensation in Hong Kong over its audit work for the failed Chinese property developer Evergrande, which was said to have overstated revenues.
Hong Kong’s accounting regulator on Thursday also announced a six-month ban on PwC from working for new clients and said it had issued a public reprimand to two of its former partners for misconduct, fining each of them a separate HK$5 million.
China Evergrande, one of China’s biggest property developers and once deemed “too big to fail,” defaulted in 2021 and became the world’s most indebted developer with roughly $300 billion in liabilities. Its rapid downfall was the most prominent case of failure in China’s property sector, which was embroiled in a liquidity crisis after authorities cracked down on excessive borrowing in the industry as many other developers had also defaulted or underwent restructuring.
The property sector slump in China has still not yet fully recovered, which has weighed on home prices across the country and impacted consumption and investment sentiment, dragging on China’s broader economic growth.
In 2024, PwC was fined by mainland Chinese authorities 441 million yuan ($62 million) over its Evergrande audit. Chinese authorities also imposed a six-month ban on the accounting firm over “false” conclusions in its audit reports for Evergrande and “serious defects” in its auditing procedures.
Hong Kong’s Securities and Futures Commission said Thursday it had investigated PwC’s work relating to Evergrande’s financial statements for 2019 and 2020 and found that its annual revenue and profits were “substantially overstated.”
It said Evergrande had manipulated annual revenue and profits by “prematurely recognising revenue from property sales before the completion and delivery of properties to buyers.” Revenues were overstated by roughly 564 billion yuan ($83 billion) over the two years, it said, after Chinese authorities reached a similar conclusion in September 2024 when it imposed its fine and ban on PwC.
The Hong Kong commission also said there were “serious breaches” of professional duties by PwC. It said it had reached an agreement with PwC — without an admission of liability by the firm — under which PwC would be setting aside HK$1 billion for compensating minority shareholders of Evergrande.
Hong Kong’s accounting regulator, the Accounting and Financial Reporting Council, said in a separate statement that PwC’s audit deficiencies for Evergrande were “particularly egregious” and that the accounting firm had “knowingly permitting” unsupported or unjustified adjustments in the 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. “Resolving these regulatory matters is an important step for the firm.”
PwC had lost dozens of clients and many of its staff following Evergrande’s downfall and in the months after China Evergrande was ordered by a Hong Kong court to be liquidated in 2024. Liquidators of China Evergrande were also pursuing legal action against PwC separately in Hong Kong in an attempt to recover what it could for creditors.
Evergrande founder Hui Ka Yan, once one of Asia’s richest persons, this month pleaded guilty to charges including fraud and bribery in a mainland Chinese court after being detained in China.