AFRC hits PwC with $38.3m fine and curbs over Evergrande audits

The Accounting and Financial Reporting Council (AFRC) successful Hong Kong has ordered PricewaterhouseCoopers (PwC) to wage a HK$300m ($38.3m) punishment implicit failures linked to its audits of China Evergrande Group.

The watchdog said PwC’s audit enactment contained superior shortcomings that enabled “material misstatements” successful the spot developer’s accounts to stay unchallenged.

In its disciplinary decision, the AFRC besides issued a nationalist reprimand against the institution and 2 erstwhile partners, Cheung Siu Cheong and Chow Sai Keung.

Each of the 2 ex-partners has been fined HK$5m.

Alongside the fiscal sanctions, the regulator has imposed a six‑month regularisation connected PwC from taking connected caller nationalist involvement entity (PIE) audit mandates.

PwC indispensable besides instrumentality remedial measures and supply advancement reports to the AFRC for 12 months, with updates required astatine intervals of nary much than 3 months. The institution was besides directed to put further unit training.

The lawsuit centres connected PwC’s audits of Evergrande’s consolidated fiscal statements for the years ended 31 December 2019 and 2020.

It besides covers the 2020 audits of Evergrande Property Services Group and China Evergrande New Energy Vehicle Group.

PwC had been Evergrande’s radical auditor from the company’s listing successful 2009 until aboriginal 2023.

According to the AFRC, PwC “failed to workout nonrecreational scepticism” successful the look of heightened risks and did not get “sufficient due audit evidence” successful cardinal areas.

The regulator further concluded that determination had been a “significant nonaccomplishment of audit independence”.

The AFRC recovered that PwC’s audit squad disregarded grounds from its ain tract inspections showing immoderate properties were inactive nether construction, portion accepting the group’s records that the properties were completed and acceptable for handover.

The determination besides stated that PwC knowingly permitted unsupported consolidation adjustments, which the AFRC described arsenic “unjustified accounting entries”, adjacent though the engagement squad knew of management’s volition to deed nett targets.

The AFRC said PwC went further by helping to hole fiscal statements utilized for consolidation, efficaciously taking connected management’s responsibilities and placing itself successful a presumption wherever it was “auditing its ain work”.

According to the regulator, these failings contributed to Evergrande recognising gross excessively early, overstating profits and misstating large plus balances.

Those plus categories were reported astatine 1.33tn yuan ($190bn) for 2019 and 1.41tn yuan for 2020, representing astir 60% and 61% of the group’s full assets for the respective years.