2024-07-17
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On July 17, media reported that PwC was considering cutting up to half of its financial services audit staff in China. In addition, PwC was also considering cutting about 20% of its staff in other audit teams and non-audit business lines.
In this regard, the PwC public relations team told the reporter from The Paper: "Due to changes in external objective conditions, we have optimized the organizational structure accordingly based on market demand. We have always valued talents and have invested heavily in talent training for many years. This adjustment is a difficult decision. We are gradually communicating with employees and ensuring that the adjustment plan complies with relevant provisions of China's labor law."
According to the official website, PwC's member firms in mainland China, Hong Kong, China and Macau operate in accordance with the laws applicable to each region. Overall, the total number of employees exceeds 20,000, including more than 800 partners.
The latest data from the official website of the Chinese Institute of Certified Public Accountants (hereinafter referred to as "CICPA") shows that PricewaterhouseCoopers Zhongtian LLP had 1,693 certified public accountants in 2022 and a total of 23 branches.
Recently, news about PwC's layoffs has been flying all over the place.
In May this year, many rumors appeared in the market, such as "PwC's China business may be suspended", "PwC will be fined tens of billions of yuan", and "PwC's Guangzhou office will be closed".
On May 10, in response to rumors that "China business may be suspended", PwC issued a statement saying that it had noticed that false information about PwC was spreading on social platforms. The false information falsely claimed to be from official channels within PwC. The information did not come from PwC, and PwC's trademark was also used without authorization, and the content was all false information.
On July 10, the market once again heard news that PricewaterhouseCoopers Guangzhou Branch would be closed. For example, "employees are required to resign within 7 days, and their computers have been locked" and "basically everyone N+1, resign within 7 days".
PwC denies Guangzhou office closure
However, the relevant person in charge of PwC's public relations team told The Paper at the time: "The Guangzhou branch has not been closed."
On July 11, the market heard that PwC Shanghai had notified its employees to take "unpaid leave", which is basically equivalent to a pay cut. According to online reports, PwC required employees to take no less than 15 days of leave, and 20% of their salary would be paid during the leave.
At that time, a reporter from The Paper learned from practitioners at the "Big Four" that they had never heard of the "Big Four" having the practice of taking "unpaid leave".
PwC has been plagued by various rumors recently, all because it is caught up in the "vortex" of Evergrande's fraud. On March 18, Evergrande Real Estate officially announced its financial fraud.
Public data shows that China Evergrande's audit agency has been PricewaterhouseCoopers since it was listed on the Hong Kong Stock Exchange in 2009, and the cooperation period lasted for 14 years until January 2023. At the same time, PricewaterhouseCoopers issued standard unqualified opinions on Evergrande's annual reports from 2009 to 2020.
In April, an anonymous letter titled "Who brought PwC into the fire pit of Evergrande?" signed by "some PwC partners" was circulated in the market.
On April 16, PwC stated that the anonymous letter contained false information about PwC and some of its partners. The relevant remarks were obviously contrary to the facts, which seriously infringed upon PwC's business reputation and legitimate rights and caused adverse effects.
"PwC attaches great importance to this matter, has taken corresponding measures, 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 pursue legal liability for those who fabricate, disseminate and spread false information." PwC pointed out at the time.
However, PwC has since suffered a setback in terms of business. On the one hand, in the short period of nearly four months since March 18, at least 34 listed companies have ended their cooperation with PwC. On the other hand, although some listed companies have chosen to renew their contract with PwC in 2024, they have adjusted the business that PwC is responsible for, resulting in a significant drop in fees.
During this period, PwC's organizational structure also underwent adjustments. On July 3, The Paper reporter learned that PwC officially changed its leadership. Starting July 1, 2024, Chao Pak-kee will retire and no longer serve as the chairman of PwC Asia Pacific and China. Li Dan will serve as the chairman of PwC Asia Pacific and China.
Further reading
In just over three months, more than 30 listed companies have ended their cooperation with PwC.
According to ifind data from Tonghuashun and incomplete statistics from The Paper, at least 32 listed companies have ended their cooperation with PwC since the March 18 announcement of Evergrande Real Estate's financial fraud until the recent change of leadership in PwC's Asia Pacific and China region. Two more companies ended their cooperation with PwC the day after the change of leadership was announced.
In addition, The Paper reporters noticed that although some listed companies chose to renew their contracts with PwC in 2024, they adjusted the business that PwC was responsible for, resulting in a significant drop in fees.
More than 30 listed companies have ended their cooperation with PwC
A reporter from The Paper found that after ending their cooperation with PwC, the other three of the Big Four took over most of PwC's original clients.
Among them, Ernst & Young Huaming Certified Public Accountants LLP (hereinafter referred to as "Ernst & Young") took over 9 former PricewaterhouseCoopers clients, ranking first. KPMG Huazhen Certified Public Accountants LLP (hereinafter referred to as "KPMG") followed closely, taking over 8 clients, and Deloitte Huayong Certified Public Accountants LLP (hereinafter referred to as "Deloitte") ranked second, taking over 6 clients.
The leading domestic accounting firm, Lixin Certified Public Accountants (Special General Partnership) (hereinafter referred to as “Lixin”), took over 2. Tianjian Certified Public Accountants (Special General Partnership) (hereinafter referred to as “Tianjian”), Deloitte Touche Tohmatsu Certified Public Accountants (Special General Partnership) (hereinafter referred to as “Deloitte”), Zhongxinghua Certified Public Accountants (Special General Partnership) (hereinafter referred to as “Zhongxinghua”), ShineWing Certified Public Accountants (Special General Partnership) (hereinafter referred to as “ShineWing”), and Daxin Certified Public Accountants (Special General Partnership) (hereinafter referred to as “Daxin”) each took over one.
The three major accounting firms "share" the former PwC clients
Most of the orders lost by PwC went to the three major accounting firms: EY, KPMG and Deloitte.
According to ifind data from Tonghuashun and incomplete statistics from The Paper reporters, from March 18 to July 4, EY took over the largest number of former PwC clients, totaling 9, namely China Cinda Real Estate (600657), Bank of Hangzhou (600926), China Life (601628), China Cinda Asset Management (01359.HK), PICC (601319), Mindray Medical (300760), Metro Beauty (02298.HK), Tong Ren Tang Technology (01666.HK), and Tong Ren Tang China Pharmaceutical (03613.HK).
KPMG followed closely behind, taking over eight former PwC clients, namely, China Merchants Energy Shipping (601872), China Merchants Shekou (001979), China Merchants Property (001914), China Merchants Group, China Taiping Insurance (00966.HK), CIMC Group (000039), and CIMC Vehicles (301039).
Deloitte ranked second, taking over six former PwC clients, namely Ningbo Port (601018), Ningbo Ocean (601022), China Railway Construction Corporation (601390), Guangzhou-Shenzhen Railway (601333), Beijing Capital Airport Co., Ltd. (00694.HK), and Tsingtao Brewery (600600).
In addition to the three major accounting firms, domestic firms have taken over a total of seven former PricewaterhouseCoopers clients.
Among them, Lixin ranks first among domestic firms, taking over two former PwC clients, namely Haitong Securities (600837) and Shanghai Silicon Industry (688126).
Tianjian, Zhitong, Zhongxinghua, Xinyong Zhonghe and Daxin each took over one company, namely China Railway Industry (600528), Guangdong Electric Power A (000539), Beichen Industry (601588), Qingdao Port (601298) and Chuangye Environmental Protection (600874).
In addition, The Paper reporters noticed that although some listed companies chose to renew their contracts with PwC in 2024, they adjusted the business that PwC was responsible for, resulting in a significant drop in service fees.
For example, on June 7, Bank of China (601988) issued an announcement stating that, based on market information, based on the principle of prudence, and considering the business needs of the bank, it agreed to adjust the original arrangement of re-employing PricewaterhouseCoopers Zhongtian Accounting Firm (Special General Partnership) and PricewaterhouseCoopers to provide annual audit services to hiring them to provide professional services such as the review of the 2024 interim financial report, with the relevant professional service fee of RMB 35 million. At the same time, it agreed to launch the bidding and selection of external auditors for 2024.
In an announcement made by Bank of China on March 28, it re-hired PwC Zhongtian and PricewaterhouseCoopers as its external auditors for 2024. The overall audit fee for the parent company and the group in 2024 was 101 million yuan.
Most of the orders lost by PwC went to the three major accounting firms, Ernst & Young, KPMG and Deloitte.
Involved in the Evergrande incident, former chairman of Asia Pacific and China retires
PwC's series of lost orders began with the announcement in March that Evergrande Real Estate had committed financial fraud in 2019 and 2020.
On March 18, Evergrande Real Estate Group Co., Ltd. issued the "Announcement on Receiving the Administrative Penalty and Market Ban Advance Notice from the China Securities Regulatory Commission". The China Securities Regulatory Commission intends to decide to take measures to ban Xu Jiayin and Xia Haijun from the securities market for life, order Evergrande Real Estate to make corrections, give warnings, and impose a fine of 4.175 billion yuan.
The announcement pointed out that the 2019 and 2020 annual reports disclosed by Evergrande Real Estate contained false records. Evergrande Real Estate committed financial fraud by recognizing revenue in advance, resulting in Evergrande Real Estate inflating its revenue by 213.989 billion yuan in 2019, accounting for 50.14% of the current operating income, corresponding to inflated costs of 173.267 billion yuan and inflated profits of 40.722 billion yuan, accounting for 63.31% of the current total profit; in 2020, Evergrande Real Estate inflated its revenue by 350.157 billion yuan, accounting for 78.54% of the current operating income, corresponding to inflated costs of 298.868 billion yuan and inflated profits of 51.289 billion yuan, accounting for 86.88% of the current total profit.
The announcement stated that in response to the illegal acts of false records in Evergrande Real Estate's 2019 and 2020 annual reports, Xu Jiayin, then chairman of Evergrande Real Estate, fully managed all businesses of Evergrande Real Estate and instructed other personnel to inflate the annual report performance of Evergrande Real Estate. His means were particularly bad and the circumstances were particularly serious. He was the directly responsible supervisor. At the same time, as the actual controller, he organized and instructed the implementation of the above illegal acts. Xia Haijun, then vice chairman and president of China Evergrande Group (hereinafter referred to as "Evergrande Group"), actually coordinated the daily business affairs of Evergrande Real Estate and organized and arranged the preparation of false financial reports. His means were particularly bad and the circumstances were particularly serious. He was the directly responsible supervisor.
For Evergrande's annual reports from 2009 to 2020, PwC issued a standard unqualified opinion.
For Evergrande's annual reports from 2009 to 2020, PricewaterhouseCoopers issued standard unqualified opinions
Public data shows that since China Evergrande was listed on the Hong Kong Stock Exchange in 2009, its auditing agency has been PricewaterhouseCoopers, and the cooperation period has lasted for 14 years until January 2023. At the same time, PricewaterhouseCoopers issued standard unqualified opinions on Evergrande's annual reports from 2009 to 2020.
Since then, PwC has been deeply caught in the "vortex" of Evergrande's fraud.
In April, an anonymous letter titled “Who brought PwC into the fire pit of Evergrande?” signed by “some PwC partners” circulated in the market.
On April 16, PwC stated that the anonymous letter contained false information about PwC and some of its partners. The relevant remarks were obviously contrary to the facts, which seriously infringed upon PwC's business reputation and legitimate rights and caused adverse effects.
"PwC attaches great importance to this matter, has taken corresponding measures, 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 pursue legal liability for those who fabricate, disseminate and spread false information." PwC pointed out at the time.
In May, rumors such as "PwC's China business may be suspended" were once again heard in the market.
In the early morning of May 10, PwC issued another statement saying: "We have noticed that false information about PwC has been spread on social platforms. The false information falsely claims to come from official channels within PwC. The information does not come from PwC, and PwC's trademark has been used without authorization. The content is all false information. PwC attaches great importance to this matter and will seriously deal with the unauthorized use of trademarks and the fabrication of false information. We have asked the relevant parties to delete the relevant information and will take other necessary actions accordingly."
On July 3, a reporter from The Paper learned that PwC officially changed its leader and Chris Chao retired.
A relevant person in charge of PwC told the reporter of The Paper: "From July 1, 2024, Chao Pak-kee has retired and will no longer serve as the chairman of PwC Asia Pacific and China. Li Dan will serve as the chairman of PwC Asia Pacific and China."
According to the information disclosed on the official website of the Chinese Institute of Certified Public Accountants on August 4, 2023, Li Dan was born in June 1971 and is now 53 years old. He is a non-partisan, a bachelor's degree, and a senior member of the Chinese Institute of Certified Public Accountants. He is a member of the National Accounting Informatization Standardization Technical Committee, a member of the Certified Public Accountant Examination Committee of the Ministry of Finance, Vice President of the Chinese Institute of Certified Public Accountants, Vice President of the Shanghai Institute of Certified Public Accountants, and a member of the Finance Committee.
From Li Dan's career experience, he has worked at PricewaterhouseCoopers for more than 30 years. From July 1993 to June 1998, he served as an audit staff and senior staff of PricewaterhouseCoopers Zhongtian Accounting Firm; from July 1998 to June 2004, he served as a manager and senior manager of PricewaterhouseCoopers Zhongtian Accounting Firm; from July 2004 to July 2015, he served as a partner and chief accountant of PricewaterhouseCoopers Zhongtian Accounting Firm; from July 2015 to date, he has served as the chief partner and head of China's audit business of PricewaterhouseCoopers Zhongtian Accounting Firm (Special General Partnership); since July 2022, he has served as the head of audit business of PricewaterhouseCoopers Asia Pacific and a member of PricewaterhouseCoopers' global audit leadership team.
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