PwC to pay HK$1 billion as compensation for auditing failures involving Evergrande
PwC China is withdrawing major payouts to partners in Hong Kong after the firm paid a record fine for its failures in auditing the now-collapsed property developer Evergrande.
Partners in Hong Kong were previously promised a share of the US$2.2 billion raised from PwC's 2022 sale of its global mobility business, which would have granted them hundreds of thousands of Hong Kong dollars to be spread over five years, the Financial Times reported.
But chief financial officer River Zhang has informed employees that PwC China is reversing this offer for its Hong Kong partners, saying the funds will be "used in the operations and investments of the firm."
A spokesperson from PwC told the Financial Times that they "do not comment on internal financial matters."
"We are fully committed to managing our business to deliver high-quality services and invest for the future," the spokesperson told the news outlet.
Fallout from Evergrande's collapse
The withdrawn payouts come as PwC agreed to set aside HK$1 billion to compensate eligible independent minority shareholders of China Evergrande Group.
Hong Kong's Securities and Futures Commission found that Evergrande overstated its annual revenue and profits for the fiscal years ended 31 December 2019 and 31 December 2020, and that PwC "failed to maintain auditor independence" during the audits of the now-collapsed developer's financial statements.
The SFC also found that PwC "actively acquiesced to manipulation by China Evergrande's management of audit samples and site inspections which facilitated the concealment of the premature revenue recognition."
PwC also failed to "exercise adequate professional scepticism in audit planning, performing the audit procedures, and handling audit irregularities," according to the SFC.
The auditing firm also failed to "sufficiently verify the authenticity of supporting documents and records" of Evergrande.
"For the first time, auditors of a defunct company are providing compensation to independent minority shareholders who were harmed by false and misleading financial statements," said Julia Leung, the SFC's chief executive officer, in April.
"This will send an unequivocal message to the audit profession and the investing public that the SFC is committed to maintain market integrity and protect investors by holding listed companies and their auditors accountable for the accuracy and reliability of financial disclosures."
With PwC agreeing to pay compensation, the matter will be fully and finally resolved without the firm admitting liability. The SFC will also no longer be taking further action against the auditing firm as long as it fulfils the terms of the agreement.
