The collective termination of PwC by 21 listed companies has brought what warning to the market?

Guo Shiliang

2024-06-03 08:45Published in Guangdong financial commentator, financial columnist

  In the past, there were five major accounting firms in the world, but after the Enron financial fraud incident, Arthur Andersen officially withdrew from the audit business, and the world's five largest accounting firms became the four major accounting firms, namely PricewaterhouseCoopers, Deloitte, KPMG, and Ernst & Young. Among them, Deloitte and KPMG were established in 1845 and 1897 respectively, and have a history of more than 100 years.

  The world's Big Four accounting firms are expected to have strong professionalism, independent judgment and a high reputation in the industry, but all this seems to have been shattered by PwC. PwC has fallen into a crisis of confidence due to the Evergrande real estate audit case, and so far 21 listed companies have collectively terminated PwC. However, for listed companies that have announced their termination, it may also be related to the fact that PwC has met the maximum number of years of service for its corporate audit business, and therefore changed its accounting firm.

  However, it is undeniable that after the audit case of Evergrande Real Estate, PwC's reputation and reputation have been affected to a greater or lesser extent.

  Just recently, Evergrande Real Estate was warned and fined 4.175 billion yuan. Behind the huge fine imposed on Evergrande Real Estate, it is related to the fraudulent issuance and inflated income of Evergrande Real Estate in that year. It is worth mentioning that PricewaterhouseCoopers has provided audit services for Evergrande Real Estate for 14 consecutive years, and has collected Evergrande audit fees of up to 270 million yuan.

  As the most professional accounting firm in the industry, in the past 14 years, it has not been able to see the falsification of Evergrande's financial reports, which is indeed puzzling. Even in the past few years when Evergrande has inflated its revenue and profits, PwC still issued a standard unqualified opinion, and there are undoubtedly many flaws in this audit report.

  Why did listed companies terminate PwC's contracts? The reasons for this can be understood as three reasons.

  The first reason is that PwC has issued a standard unqualified opinion in the audit report of Evergrande Real Estate for 14 consecutive years, and its professionalism and authority have been questioned by many people. If a listed company hires PricewaterhouseCoopers as its own audit institution, whether its audit report is professional and authoritative, and whether it will be recognized by other institutions is an important factor affecting the listed company's own image.

  The second reason is that PwC is no longer facing a simple problem, but a crisis of trust. For professional accounting firms, professionalism is the key, if professionalism is lost, it means that the reputation and reputation of the industry will be greatly reduced, and it is not excluded that more companies will announce the termination of contracts in the future.

  The third reason, with the implementation of Evergrande's penalty measures, will PwC be punished next? What is the severity of the punishment? There are certain unknowns about these issues. As a "gatekeeper", PricewaterhouseCoopers did not strictly play the role of a gatekeeper, and it is estimated that it will be a long process to make up for the subsequent word-of-mouth reputation.

  Professional things should have been handed over to professionals and professional institutions to do, but this professional organization has not shown its strong professionalism, and its "gatekeeper" work is obviously not in place.

  In the past, Arthur Andersen withdrew from the audit business due to Enron's financial fraud, and then PricewaterhouseCoopers was deeply involved in the Evergrande audit case, and for the market, the most professional institutions may not be absolutely reliable. At the same time, this incident has also sounded a wake-up call to the market, even if it is a globally well-known and highly professional accounting firm, once it deviates from its professionalism and its reputation, then no matter how famous the institution is, it will be abandoned by the market.

  The Enron financial fraud case 23 years ago has sounded the alarm for the entire industry, but unfortunately, some institutions are still repeating mistakes, and the cost of making mistakes will only greatly reduce their reputation and even gradually be abandoned by the market. Constantly improving one's own professionalism, insisting on one's own independent judgment ability, and constantly consolidating one's reputation are the keys to maintaining a competitive position in the long term of a professional organization.

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