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PricewaterhouseCoopers, which has been embroiled in rumors of layoffs, has once again made a public statement.

On July 17, in response to rumors of layoffs, the company's public relations team responded to inquiries from multiple media outlets, saying that due to changes in external objective conditions, the company had to optimize its organizational structure in accordance with market demand, and that this adjustment was a difficult decision. The public relations team also mentioned in the statement that they were gradually communicating with employees and ensuring that the adjustment plan complied with relevant provisions of China's labor law.

After experiencing the audit scandal of Evergrande's huge financial fraud, PwC was exposed to have many companies in China terminate their contracts. The Financial Times said on July 17 that this would cause PwC to lose at least about 561 million in audit income in China, which was two-thirds lower than last year.

Recently, a PwC employee revealed to Nandu reporters that the company had already started layoffs, covering branches in Beijing, Shanghai, Guangzhou and other places. PwC’s internal employees have successively formed multiple rights protection groups, and some groups have even reached the upper limit of 500 people. They demanded that the rights and interests of employees be protected in this round of layoffs.

PwC’s “mission and values” as displayed on its official website.

Experience of Evergrande’s financial fraud caseback,PwC has been terminated by at least 34 companies

On March 18 this year, 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.

Evergrande Real Estate disclosed financial fraud in its 2019 and 2020 annual reports. However, PricewaterhouseCoopers Hong Kong issued a standard unqualified opinion on Evergrande's annual reports from 2009 to 2020.

Although the formal administrative penalty against PwC has not yet been implemented, PwC has frequently lost large annual audit orders from listed companies since March 18.

According to incomplete media statistics, at least 34 listed companies have ended their cooperation with PwC, including major clients such as China Life, PetroChina, PICC, China Taiping, China Merchants Bank, Bank of Ningbo, Bank of Hangzhou, as well as listed companies such as Dongpeng Special Drink and Tsingtao Beer. According to a report by the Financial Times on July 17, PwC's China department will lose about two-thirds of its accounting income from mainland listed company clients this year, at least RMB 561 million.

As PwC lost the big order, three other foreign accounting firms became the "winners". According to statistics, among the 34 companies, 9 went to EY, 8 switched to KPMG, 6 switched to Deloitte, and a few companies chose domestic accounting firms.

As business shrank, a wave of layoffs followed.

A PwC employee said that in addition to recent layoffs, the company also forced employees to take leave to reduce monthly salary expenses. Employees within the company have begun to set up groups to fight for their rights. "There are a lot of people in the WeChat group, including employees who have been laid off and are waiting for layoffs from all over the country. The specific number of layoffs is not clear."

However, according to the above-mentioned employees, this round of layoffs is relatively large. According to public data, PwC has 19,417 employees in mainland China, including 781 partners. "There are 3,000 to 4,000 people in Beijing alone. The proportion of layoffs is small, but the number of people is not small."

It is revealed that due to the layoffs, many PwC employees have voluntarily resigned. Previously, there was frequent employee turnover among the Big Four accounting firms. "The other three accounting firms are not doing well at the moment, and there are only a limited number of employees who can take over."

Hong Kong accounting firm intervenes in Evergrande fraud investigation, denies allegations against PwC

In fact, this is not the first time that a foreign accounting firm has been involved in an audit fraud scandal in China, but its impact is far greater than before.

In March last year, the Ministry of Finance announced the results of Deloitte's investigation into Huarong's audit fraud: Deloitte's Beijing branch was suspended from operating for three months due to serious audit defects, and its illegal gains were confiscated and fined a total of more than 210 million yuan. This was the first time the Ministry of Finance issued a fine of 100 million yuan. However, according to industry insiders, this punishment did not have much impact on Deloitte's business.

On May 31 this year, the China Securities Regulatory Commission officially announced its decision to punish Evergrande and emphasized that it is advancing an investigation into the relevant intermediary institutions involved in the Evergrande Real Estate case. Evergrande's fraudulent increase in revenue reached 564.146 billion yuan, causing an uproar in public opinion.

Shortly after Evergrande released the announcement, in April this year, an anonymous letter titled "Who brought PwC into the fire pit of Evergrande?" and signed by "some PwC partners" circulated on social media, directly targeting PwC's former chairman of Asia Pacific and China, Raymond Chao.

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.

At the same time, the Hong Kong Accounting and Finance Bureau issued a statement on April 19 saying that it would launch an investigation into the matter. After that, rumors emerged again that PwC would suspend its business in China. In response, PwC clarified that the information was false.

On July 10, the Hong Kong Accounting and Finance Bureau issued a statement saying that the Hong Kong Accounting and Finance Bureau had conducted a rigorous review of the internal investigations alleged in the whistleblower letter and believed that the evidence collected was insufficient to support the three accusations against PwC in the whistleblower letter. These included failure to establish and maintain a quality control system, comply with professional standards and applicable laws and regulations; failure to comply with professional standards for client acceptance and maintenance of client relationships; and failure to assign appropriate personnel to key positions in the quality management system, which may undermine the firm's monitoring functions. It is understood that the Hong Kong Accounting and Finance Bureau is still continuing to review PwC's audit fraud on Evergrande.

Almost at the same time, PwC China announced a change of leadership. Li Dan became the chairman of PwC Asia Pacific and China, and Zhao Baiji retired on July 1. Public information shows that Li Dan joined PwC in 1993 and has served PwC China for more than 30 years. Since July 2015, he has served as the chief partner and head of China's audit business of PwC Zhongtian Accounting Firm; since July 2022, he has served as the head of PwC's Asia Pacific audit business and a member of PwC's global audit leadership team. According to the official website of PwC China, Li Dan will lead PwC China to deeply practice the corporate mission of "solving important problems and creating social integrity."

Accounting firms frequently caught up in fraud scandals? The China Securities Regulatory Commission saidWill increase the cost of illegal activities

PricewaterhouseCoopers, which is in the eye of the storm, has long been ranked first among the Big Four foreign accounting firms. From a longer historical perspective, the world's largest accounting firmArthur Andersen(Arthur Andersen), exactlyHe was forced to withdraw from the auditing business because he helped Enron commit fraud.

The problem of audit fraud by accounting firms has been exposed repeatedly.

In July 2018, PwC accepted a $625 million fine, setting a new record for accounting firms. The case stemmed from the bankruptcy of the US mortgage company TBW, which commissioned the US Federal Deposit Insurance Corporation to sue PwC, claiming that during its audit of Colonial Bank of Alabama, it failed to promptly discover the collusion between the bank and TBW's senior management to commit fraud, causing huge losses to the company, and demanded compensation of $5.5 billion. The court ruled that PwC pay the plaintiff, the US Federal Deposit Insurance Corporation, $625 million in compensation.

It's not just PwC. The US court's investigation of a $5.5 billion claim stems from an investigation into Deloitte's audit fraud. KPMG was investigated for Xerox's overstated profits of $1.4 billion over five years, and Ernst & Young was also fined more than $4 million for violating the independence rules of audit institutions.

In addition to foreign-funded accounting firms, domestic accounting firms have also been involved in fraud scandals in recent years. Ruihua Accounting Firm, once the largest domestic accounting firm, was investigated by the China Securities Regulatory Commission for suspected financial fraud of listed company Kangdexin. Ruihua subsequently suffered aftershocks and all its subsidiaries' IPO projects were terminated. Dahua Accounting Firm, one of the eight largest accounting firms in China, has also been caught up in a whirlpool of audit fraud for listed company Jintongling in recent years.

An audit practitioner told Nandu reporters that in her opinion, in general, foreign-funded firms are still more regulated and strict than domestic ones, but the frequent fraud scandals of accounting firms are an inherent contradiction that is difficult for the audit industry to resolve. "The client gives you money to audit the client's accounts. It is the investor, what can you say?" The above-mentioned person said helplessly that sometimes audits can only try to control risks. "We don't pursue no problems at all, we can only try to reduce them."

An internal auditor in the financial industry also said in an interview with the media that internal auditing is difficult and requires a sense of propriety, "often suppressing major issues and reporting trivial matters that are insignificant."

In recent years, the China Securities Regulatory Commission and other departments have repeatedly emphasized the need to increase supervision of accounting firms. Relevant officials of the China Securities Regulatory Commission have publicly stated that they will strengthen supervision of accounting firms and build an audit ecology where the fittest survive by increasing the cost of audit violations and irregularities and promoting civil legal liability.

Written by: Southern Metropolis Daily reporter Jiang Xiaotian from Beijing