It’s already cost PwC China as much as two-thirds of their revenue due to regulatory punishments and reputational fallout, and now the collapse of long-time audit client Evergrande in 2021 could take another $8.4 billion out of PwC’s pockets. Although it was PwC Zhong Tian that did the work, the liquidators are dragging PwC International into the claim as well in a fight that could extract billions from PwC coffers. Effectively, the liquidators are saying that PwC International sits atop the whole shebang and therefore is liable when one of their members fucks up this hard.
In 2024, the China Securities Regulatory Commission fined PwC China 325 million yuan ($45.8 million USD at the time). But it was the China Ministry of Finance that really hit them hard: 116 million yuan ($16.35 million USD) in fines and a six month ban. Against 2022 revenue of about $1.1 billion, the fines alone ate up 5.6% of revenue. At the time, PwC Global Chair Mohamed Kande said that “the work performed by PwC Zhong Tian’s Hengda audit team fell well below our high expectations and was completely unacceptable” and that it is “not representative of what we stand for as a network and there is no room for this at PwC.”
Cue the late great Billy Mays here: “BUT THAT’S NOT ALL!”
As reported by Reuters yesterday and briefly covered in the Monday Morning Accounting News Brief, Evergrande Group liquidators want 57 billion yuan ($8.4 billion). PwC International maintains that it wasn’t their client and therefore they shouldn’t even be dragged into this:
The total claim by liquidators, Edward Middleton and Tiffany Wong of Alvarez & Marsal, was made against PwC International, PwC HK and PwC’s China arm, while the maximum amount that PwC International could be liable for is 38 billion yuan ($5.8 billion USD).
Monday’s hearing was focused on how much responsibility PwC International should bear.
Richard Handyside, a lawyer representing PwC International, argued that the firm should not be a party to the case as the Big Four company consists of several firms and the Hong Kong and China entities were not its subsidiaries.
There were no communications between PwC International and Evergrande, and it did not have a “duty of care” with respect to the developer’s financial audits, he argued.
But a lawyer for the liquidators, Adrian Beltrami, argued that PwC International sits at the top of the group and is responsible for maintaining the standards of member firms.
A judgment is expected in a few months. Pretty dangerous precedent if the global bodies start getting dragged into lawsuits every time one of the locals screws up.
Earlier:
