Follow-up to Evergrande's performance fraud: The Hong Kong Accounting and Finance Bureau will investigate the accounting firm!

On the 19th, the Hong Kong Accounting and Financial Reporting Council (AFRC) issued an announcement stating that it had noticed that a whistleblower letter was circulating and had been widely reported by the media.

The letter expressed serious concerns about the quality management system of PricewaterhouseCoopers (i.e. PricewaterhouseCoopers Hong Kong) and the potential deficiencies in the quality of the audits conducted by China Evergrande Group. The key allegations include: failure to establish and maintain an effective quality control system to ensure audit quality and compliance with professional standards and applicable legal and regulatory requirements, failure to comply with professional standards in relation to client engagement and maintenance of client relationships when providing audit and other professional services to Evergrande Group, failure to assign appropriate personnel to key positions in the accounting firm's quality management system, which may compromise the firm's control function, and failure to perform appropriate audit procedures for the audit of Evergrande Group.

According to the AFRC, in view of the seriousness of the allegations, the AFRC has a duty to conduct an investigation in order to protect the wider public interest in the investment public and the audit of listed entities, and to safeguard the public's confidence in the integrity of the accounting profession. If any misconduct or contravention of the AFRCO is detected, the AFRC will not hesitate to take stringent enforcement action against the firms and individuals involved.

In fact, as early as October 2021, the Hong Kong Accounting and Finance Council (formerly known as the FRC) issued an announcement entitled "The Financial Reporting Council Launched an Investigation on China Evergrande Group's Reporting on Continuing Operations" (hereinafter referred to as the "Investigation"). According to the Investigation, the AFRC conducted an enquiry into the financial statements of China Evergrande Group for the six months ended 31 December 2020 (2020 annual accounts) and 30 June 2021 (2021 interim accounts).

Recently, an open letter titled "Who brought PwC into the fire pit of Evergrande" has been fermenting in the market, signed as "a part of PwC partners", which exposes PwC's internal audit quality management and other issues.

PwC China issued a statement on its official website on April 15, saying that recently, PwC noticed that an anonymous letter signed by "a part of PwC partners" claiming to be published and disseminated on certain social platforms or media. The anonymous letter contained false information about PwC and some of its partners, which was clearly contrary to the facts, seriously infringing on PwC's business reputation and legal rights, and causing a bad impact.

PwC takes this matter very seriously, has taken countermeasures, and will conduct an in-depth investigation into the matter. PwC has reported the publication and dissemination of the letter to the relevant law enforcement authorities and reserves the right to hold those responsible for falsifying, disseminating and disseminating false information legally responsible.

On March 18, the prior notice of administrative penalties and market bans disclosed by Evergrande Real Estate showed that the CSRC found that the 2019 and 2020 annual reports disclosed by Evergrande Real Estate contained false records. Evergrande Real Estate committed financial fraud by recognizing income in advance, resulting in an inflated income of 213.989 billion yuan in 2019 and 350.157 billion yuan in 2020. In addition, Evergrande Real Estate's suspected illegal bond information disclosure case has been investigated by the China Securities Regulatory Commission. It was found that Evergrande Real Estate cited the relevant data of the 2019 and 2020 annual reports with false records in the five bond issuance documents with a total of 20.8 billion yuan, which were suspected of fraudulent issuance.

Editor-in-charge: Ye Shuyun

Proofreading: Zhu Tianting

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