PwC is abandoned! You always have to pay it back when you come out to mix!

静观Finance

2024-05-30 15:23Published in Hebei Finance and Economics columnist

PwC, in crisis!

In capital markets, auditors play a crucial role, they are the cornerstone of investor trust and the guardians of corporate financial transparency. However, PwC has recently encountered an unprecedented crisis of confidence, and a number of listed companies have terminated their contracts with it, which has aroused widespread attention and discussion in the market.

According to media reports, PricewaterhouseCoopers has recently encountered a wave of "lost orders". On May 28, China Merchants Port announced the cancellation of the proposal to appoint PricewaterhouseCoopers as the accounting firm for 2024, which was originally scheduled to be submitted to the 2023 Annual General Meeting of Shareholders for deliberation. Previously, large enterprises such as Chinese Life, Chinese People's Insurance, China Railway, and China Merchants Bank also successively rehired other audit institutions, resulting in PwC's loss of more than 200 million yuan. According to statistics, since the beginning of this year, nearly 20 companies have terminated or are about to terminate contracts with PricewaterhouseCoopers, involving audit fees of up to 160 million yuan.

And all this has to be attributed to the "bad relationship" between PwC and Evergrande.

PwC's predicament is not unrelated to its involvement in the Evergrande fraud scandal. As the auditor of China Evergrande since its listing in 2009, PwC has issued unqualified audit reports during its 14-year cooperation. However, in March this year, Evergrande Real Estate was investigated by the China Securities Regulatory Commission on suspicion of illegal bond information disclosure, and it was found that its 2019 and 2020 annual reports had inflated revenue by a total of 564.1 billion yuan. PwC issued a standard unqualified audit report on Evergrande Real Estate's 2019 and 2020 annual reports, which undoubtedly increased the market's doubts about its audit quality.

It is precisely because of the influence of Evergrande that the crisis of confidence in PwC has begun to spread.

When trust is damaged, the impact is swift and far-reaching. After PwC's audit quality was questioned, a number of listed companies chose to terminate their contracts out of prudence. For example, media information shows that Dongpeng Beverage made it clear in the cancellation of the "Proposal on the Renewal of the Appointment of an Accounting Firm" that it was rehired based on the principle of prudence in view of the fact that PwC's recent relevant matters have yet to be further verified. China Railway said that taking into account the existing business situation, development needs and overall audit needs, it will rehire other institutions after comprehensive consideration.

The immediate effect was that companies that no longer worked with PwC "inadvertently" saved a lot of money.

Behind the termination of PwC's contract, there is also a significant reduction in the audit fees of some enterprises. For example, according to media data, the audit fee paid by China Railway to PricewaterhouseCoopers in 2023 was 37.1 million yuan, while after the change to Deloitte, the audit fee in 2024 was 25 million yuan, a decrease of 12.1 million yuan. The service fee paid by Mindray Medical in 2024 is 5.38 million yuan, a decrease of 620,000 yuan from the service fee in 2023. This reflects a re-evaluation of the value of PwC's services.

In the wake of the PwC crisis, its rivals had their chances.

While PwC is struggling, other accounting firms are seeing an opportunity. Ernst & Young, KPMG and others have released social recruitment information to recruit audit and other related positions. A PricewaterhouseCoopers insider revealed that the other three firms are recruiting in the community, and the prices have dropped a lot. This scene is strikingly similar to the history of Arthur Andersen's collapse more than 20 years ago, when PricewaterhouseCoopers became an important beneficiary after the Enron financial fraud case in the United States.

In the face of PwC's crisis of confidence, regulators were quick to step in. The Hong Kong Accounting and Financial Reporting Council (AFRC) has taken note of the whistleblower letter against PwC and announced that it will investigate it. The AFRC stated that in view of the seriousness of the allegations, it had a duty to investigate in order to protect the investing public and the wider public interest involved in the audit of listed entities.

So, will PwC still have a chance to save itself in the future?

In the face of market doubts and peer competition, PwC is also actively helping itself. The most representative is to start refuting all kinds of rumors. On May 10, PwC issued an emergency statement late at night, saying that the news about PwC disseminated on social platforms was false information and did not come from internal official channels, and that PwC's trademark was misappropriated without authorization. PwC stressed that it has taken countermeasures and reserves the right to pursue legal responsibility.

Time has passed, has PwC's counterattack worked?

The abandonment of PwC is a wake-up call for all audit firms. As an important participant in the capital market, audit institutions must adhere to the principles of independence, objectivity and impartiality, and any negligence may lead to the collapse of trust. At the same time, it also reminds investors that when choosing an investment target, they should not only look at the financial statements of the company, but also pay attention to the credibility and quality of its audit institutions.

Only by being truly professional and responsible can we gain a foothold in the market.

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