Hong Kong regulators have fined PwC, one of the world's largest accounting firms, a total of $166 million (HK$1.3 billion) in fines and compensation for its audit work related to the collapsed Chinese property developer Evergrande. The penalty, announced on Thursday by Hong Kong's accounting regulator, includes a six-month ban on PwC from accepting new clients in the region.
Regulatory Actions and Penalties
The Accounting and Financial Reporting Council (AFRC) also issued a public reprimand to two former PwC partners for misconduct, fining each an additional HK$5 million. The Hong Kong Securities and Futures Commission (SFC) revealed that its investigation into PwC's audits of Evergrande's 2019 and 2020 financial statements found that annual revenue and profits were "substantially overstated."
The SFC stated that Evergrande manipulated its financials by "prematurely recognising revenue from property sales before the completion and delivery of properties to buyers," leading to an overstatement of revenues by approximately 564 billion yuan ($83 billion) over the two-year period. Chinese authorities had reached a similar conclusion in September 2024 when they fined PwC 441 million yuan ($62 million) and imposed a six-month ban for "false" audit conclusions and "serious defects" in procedures.
PwC's Response and Compensation
While PwC did not admit liability, it agreed to set aside HK$1 billion to compensate minority shareholders of Evergrande. In a statement, PwC Hong Kong acknowledged that its audit work "fell well below our high expectations and the expectations of our stakeholders" and described resolving the regulatory matters as "an important step for the firm."
The AFRC described PwC's audit deficiencies as "particularly egregious," accusing the firm of "knowingly permitting" unsupported or unjustified adjustments in Evergrande's financial statements.
Broader Context of Evergrande's Collapse
China Evergrande, once one of the country's largest property developers and deemed "too big to fail," defaulted in 2021, becoming the world's most indebted developer with roughly $300 billion in liabilities. Its downfall epitomized the liquidity crisis in China's property sector, triggered by government crackdowns on excessive borrowing. The sector's slump continues to weigh on home prices, consumption, and investment sentiment, dragging on China's economic growth.
Following Evergrande's collapse, PwC lost dozens of clients and many staff members. In 2024, a Hong Kong court ordered Evergrande's liquidation, and liquidators are separately pursuing legal action against PwC to recover funds for creditors. Meanwhile, Evergrande founder Hui Ka Yan, once one of Asia's richest individuals, pleaded guilty this month to fraud and bribery charges in a mainland Chinese court after being detained in China.
