PwC Cleared of Major Allegations in Hong Kong Inquiry

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Hong Kong’s audit regulator announced on Wednesday that it had found no evidence to substantiate many of the explosive allegations made against PwC in an apparent whistleblower’s report regarding the firm’s work for the now-collapsed Chinese property developer Evergrande. The Accounting and Financial Reporting Council (AFRC) dismissed claims that PwC’s Hong Kong operations had inadequate quality controls and other deficiencies. This development provides a significant boost to the Big Four accounting firm as it seeks to reassure clients rattled by its association with Evergrande.

Despite this clearance, the AFRC’s investigation into PwC Hong Kong’s specific work for Evergrande is still ongoing. Concurrently, PwC’s sister firm in mainland China is preparing for potential penalties from Beijing related to its audit of an Evergrande subsidiary, as previously reported by the Financial Times.

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The AFRC’s review included an evaluation of PwC’s internal investigation prompted by anonymous whistleblowers who claimed to be partners within the firm. The three most serious allegations—defective quality controls, improper audit oversight, and breaches of professional standards in client selection—were not corroborated by the evidence, the regulator stated.

The AFRC emphasized that their announcement was made in light of the serious nature of the public allegations and the potential impact on public confidence in the integrity of the accounting profession. They stressed the importance of public interest in their findings.

The controversy has taken a toll on PwC Hong Kong and PwC Zhong Tian, the mainland entity, both of which operate under the same management. The firms have experienced client losses amid regulatory probes and public scrutiny over their work for Evergrande. In March, the China Securities Regulatory Commission accused Evergrande’s mainland operations and its founder of inflating revenues by $78 billion in the years leading up to its 2021 collapse.

PwC Hong Kong had been Evergrande’s auditor since its 2009 listing in Hong Kong, while Hengda Real Estate, Evergrande’s mainland subsidiary, was audited by PwC Zhong Tian. As a result of these investigations and public criticisms, the PwC entities have lost more than 30 publicly listed companies as audit clients this year. PwC Hong Kong, in particular, lost clients such as China Taiping Insurance and China Merchants Bank, both Chinese state-owned enterprises listed in Hong Kong.

Raymund Chao, who led both PwC firms for nine years and was criticized in the anonymous whistleblower letter, retired at the end of last month. PwC has previously dismissed the whistleblower letter as containing “inaccurate statements and false allegations.” The firm did not respond to requests for comments on the AFRC’s findings on Wednesday.