Foreign media essay, PwC may face a penalty of 1 billion, will it withdraw from China?

There are many financial stories

2024-05-31 17:02Published in Guangdong

broke the news, foreign media revealed that PricewaterhouseCoopers will face sky-high penalties, and it is a new record for the amount of fines.

According to people familiar with the matter, the mainland's Ministry of Finance will announce a penalty decision against PricewaterhouseCoopers as soon as this week, possibly fining at least 1 billion yuan, and suspending some of its operations in China. However, the person familiar with the matter also added: the punishment decision has not yet been finalized, and there are still uncertainties.

In other words, everything is still speculation, and there is no accurate information. But one thing is certain, PwC is under investigation, and the 21st Century Business Herald has confirmed the news before.

In fact, it is normal to be investigated. Because Evergrande inflated its revenue by more than 560 billion yuan, it is the largest financial fraud case in China's history. In 2019 and 2020, when Evergrande committed financial fraud, PricewaterhouseCoopers issued unqualified opinions.

The financial statements were audited by you, and you said it was fine, but now there is a huge fraud, is it necessary to investigate whether you are aware or have been deceived.

However, judging from the actions of more than 20 enterprises such as central enterprises to cancel cooperation, PwC is estimated to be inseparable. Looking at PetroChina's announcement, on March 25 this year, all 12 directors of the company agreed to re-appoint PricewaterhouseCoopers as the auditor for 2024.

However, on May 30, PetroChina announced that it would cancel the renewal of PwC's appointment because "further verification is needed in view of recent matters related to the audit industry." ”

In view of the recent matters related to the audit industry, this is a very euphemistic statement, and it is possible that the news about PwC has been received, and it is worried that it will affect the company.

Looking at China Taiping, it only hired PricewaterhouseCoopers, that is, PwC's company in Hong Kong, in May 2023. Recently, it was also announced that it would cancel its cooperation with PwC. Chinese also announced the cancellation of its cooperation with PricewaterhouseCoopers, and the two companies have cooperated for three years.

PetroChina changed in just 2 months, China Taiping only cooperated for one year, and Chinese Insurance cooperated for three years, all of which are very short, which is a very abnormal phenomenon, but it sends a strong signal.

We can briefly analyze what kind of penalties PwC will face and whether it will withdraw from the Chinese market, which is purely personal speculation.

Let's take a look at the punishment in March last year, Deloitte, the accounting firm responsible for the financial audit of China Huarong. According to the Ministry of Finance, China Huarong had internal control and risk control failures and serious distortion of accounting information to varying degrees from 2014 to 2019, and Deloitte failed to penetrate the audit of the true status of the underlying assets, neglected to approve and comply with major investment matters, etc., in short, there was serious dereliction of duty.

Therefore, Deloitte was given a warning, suspended the business operations of Deloitte Beijing Office for 3 months, confiscated the illegal gains of Deloitte Beijing Office, and imposed a total fine of about 220 million yuan. Several others have had their CPA certificates revoked or suspended from performing their business for 6 months to 1 year.

It should be noted that China Huarong did not say that there was financial fraud, but Evergrande was the largest financial fraud incident, so from this point of view, the punishment faced by PwC must be much more serious.

Illegal gains should be confiscated, right? PricewaterhouseCoopers Services Evergrande received 270 million yuan, and the fine is indispensable. Therefore, it is possible to confiscate illegal gains and impose fines of more than 1 billion yuan.

It is also possible to suspend some operations, and it is said that PwC has asked colleagues from Guangzhou to transfer to Shenzhen or Hong Kong. Therefore, it is expected that PwC's Guangzhou office will be suspended, and it is not impossible for it to be seriously closed, and PwC's head office should also face penalties.

PwC's exit from China is unlikely, but it will certainly be hit hard in the short term. Now that the punishment results have not come out, so many companies have canceled their cooperation, and it is said that the amount of cooperation lost has exceeded 200 million yuan.

Once the results of the investigation and penalties are announced, it is estimated that the number of companies canceling cooperation will skyrocket. According to Wind data, PwC's A-share annual report audit clients in 2023 have a total of 107, and 21 have now terminated their contracts.

The impact of Evergrande's financial fraud is too bad, so many investors, partners, and home buyers have been pitted, and they are not punished heavily, how can it be justified. I expect that the handling of Evergrande's financial fraud will become a landmark event and a turning point, and the living space of fraudsters will become smaller and smaller in the future.

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