PwC Loses Largest China Client in Wake of China Evergrande Storm

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Bank of China joined a growing list of Chinese companies terminating contracts with PwC as the collapse of China Evergrande put the auditor’s work in doubt

PricewaterhouseCoopers LLP (PwC) has lost its largest client in the Chinese mainland amid a wave of client departures triggered by a regulatory probe into the auditing firm’s work with scandal-hit developer China Evergrande Group.

Bank of China Ltd. (601988.SH), one of the country’s biggest four state lenders, said it will hire EY as its auditor for 2024, replacing PwC China. The bank will also hire domestic audit firm BDO China Shu Lun Pan CPAs LLP as the secondary auditor, Caixin learned.

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PwC lost its largest Chinese client, Bank of China, amid a regulatory probe linked to China Evergrande.
Bank of China hired EY and BDO China Shu Lun Pan as new auditors for 2024.
China Evergrande faces severe penalties for financial misreporting, and PwC is under investigation and facing court proceedings for its auditing role.

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Who’s Who

PricewaterhouseCoopers LLP (PwC): PricewaterhouseCoopers LLP (PwC) is under scrutiny due to its auditing work with China Evergrande Group. This led to significant client departures, including Bank of China Ltd. and other major Chinese companies. Regulatory findings indicated Evergrande inflated its revenue and profits. PwC faces potential penalties and court proceedings for alleged "negligence" and "misrepresentation." Amid this, several state banks have switched auditors, often opting for EY or KPMG.

Bank of China Ltd.: Bank of China Ltd. (601988.SH), one of China's largest state lenders, will replace PwC China with EY as its auditor for 2024. The bank will also appoint BDO China Shu Lun Pan CPAs LLP as a secondary auditor. In 2023, it paid PwC 193 million yuan ($27 million) in auditing fees.

EY: EY (Ernst & Young) is being hired as the new auditor for Bank of China Ltd. in 2024, replacing PwC China. This change is part of a broader trend among Chinese companies shifting away from PwC amid regulatory scrutiny over its auditing practices. Other major state banks, three of the six largest, have already appointed EY as their auditor.

BDO China Shu Lun Pan CPAs LLP: BDO China Shu Lun Pan CPAs LLP is a domestic audit firm in China. According to the article, Bank of China Ltd. will hire BDO China Shu Lun Pan CPAs LLP as its secondary auditor for 2024, replacing PwC China amid a regulatory probe into PwC's work with China Evergrande Group. This decision is part of a larger trend of Chinese companies terminating contracts with PwC.

China Evergrande Group: China Evergrande Group is a scandal-hit developer subjected to regulatory scrutiny for fraudulent bond issuance and breaking information disclosure rules. Its major domestic subsidiary, Hengda Real Estate Group Co. Ltd., was fined $577 million in June for inflating revenue and profits in 2019 and 2020. The exaggerated figures accounted for a significant portion of Hengda's total revenue and profit. Additionally, Evergrande's liquidators filed court proceedings against PwC for negligence and misrepresentation in its auditing work.

Hengda Real Estate Group Co. Ltd.: Hengda Real Estate Group Co. Ltd., a major subsidiary of China Evergrande, was fined $577 million by the China Securities Regulatory Commission for fraudulent bond issuance and breaking information disclosure rules. The company inflated its 2019 and 2020 revenues by 214 billion yuan and 350 billion yuan respectively, and exaggerated its profits by 63% and 87% in those years.

Postal Saving Bank of China Co. Ltd.: The Postal Saving Bank of China Co. Ltd. is set to announce a new auditor soon, likely appointing KPMG to replace Deloitte. This change is due to Chinese regulations that state-owned firms should not employ the same auditor for more than eight consecutive years.

KPMG: KPMG is one of the auditing firms currently used by two of China's six largest state banks. It is likely to be appointed by the Postal Saving Bank of China Co. Ltd. to replace Deloitte, which has reached its maximum hiring duration under Chinese rules that limit state-owned firms to employing the same auditor for no more than eight consecutive years.

Deloitte: Deloitte currently audits the Postal Saving Bank of China Co. Ltd., which is set to announce a new auditor soon. Due to Chinese rules that state-owned firms should not employ the same auditor for more than eight consecutive years, the bank is expected to appoint KPMG as Deloitte's replacement.

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What Happened When

2023：: Bank of China paid PwC 193 million yuan in auditing fees, marking the third consecutive year of using its services.

March 2024：: Bank of China announced plans to reappoint PwC as its auditor for 2024.

May 2024：: Five companies decided to stop working with PwC.

June 2024：: PetroChina Co. Ltd. and China Railway Group Ltd. decided to stop working with PwC.

June 2024：: China Securities Regulatory Commission announced a $577 million fine on Hengda Real Estate Group Co. Ltd. for fraudulent bond issuance and breaking information disclosure rules.