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recently, the ministry of finance has made an administrative penalty decision against pricewaterhousecoopers zhongtian accounting firm and its guangzhou branch for illegal acts in the audit project of evergrande real estate group co., ltd. (hereinafter referred to as evergrande real estate). relevant officials of the ministry of finance answered reporters' questions about the investigation and handling of the case. pricewaterhousecoopers was fined the maximum amount for illegal gains in the evergrande real estate audit project, the guangzhou branch that assumed direct audit responsibility was fined the maximum amount of qualification revoked, and pricewaterhousecoopers, which assumed the main audit responsibility, was severely punished by suspending its business for 6 months.

relevant officials of the ministry of finance answered reporters' questions regarding the administrative penalty case against pwc

recently, the ministry of finance made an administrative penalty decision against pricewaterhousecoopers zhongtian accounting firm (hereinafter referred to as pricewaterhousecoopers) and its guangzhou branch for illegal acts in the audit project of evergrande real estate group co., ltd. (hereinafter referred to as evergrande real estate). the relevant person in charge of the ministry of finance answered reporters' questions about the investigation and handling of the case.

q: please give us an overview of the ministry of finance's inspection and punishment of pwc.

answer: in response to the clues of illegal issues of pricewaterhousecoopers in evergrande real estate's financial fraud reported by relevant parties, according to relevant work arrangements, starting from january 2024, the ministry of finance organized an inspection team to conduct special inspections on the quality of pricewaterhousecoopers' evergrande real estate audit projects. the inspection team of the ministry of finance overcame difficulties such as the large volume of evergrande real estate's business, the resignation of personnel from the units under investigation, and limited administrative inspection methods. by reviewing the audit working papers, interviewing relevant personnel, extending external investigations to relevant units, and analyzing the emails between relevant personnel, the on-site inspection work was completed in a solid manner. the special inspection adheres to the law and regulations and seeks truth from facts to ensure that every problem found has sufficient support. in accordance with the inspection work procedures, the ministry of finance solicited pricewaterhousecoopers' opinions on the problems found during the on-site inspection, and organized experts to review and verify its feedback.

in response to the issues identified during the inspection and trial, the ministry of finance filed a case for administrative punishment against pricewaterhousecoopers and the relevant certified public accountants, and issued a notice of administrative punishment. in response to the statements and defense opinions raised by individual parties, the ministry of finance made a final administrative punishment decision after reviewing them in accordance with the law.

q: please introduce the collaborative work between the ministry of finance and the china securities regulatory commission in this case.

answer: during the investigation of the pwc evergrande real estate case, the ministry of finance strengthened its coordination and cooperation with the china securities regulatory commission, strengthened its work synergy, and improved its work quality and efficiency. during the inspection stage, the china securities regulatory commission investigated evergrande real estate's 2019 and 2020 annual reports for false records, fraudulent issuance of corporate bonds and other illegal acts in accordance with the law. the ministry of finance made full use of the investigation results of the china securities regulatory commission to verify the accounting responsibilities of evergrande real estate, and on this basis, checked and determined the audit responsibilities of pwc in 2019 and 2020; combined with the clues of problems reported by relevant parties, further inspections found pwc's audit violations in 2018 and determined the corresponding audit responsibilities.

during the administrative penalty stage, the ministry of finance and the china securities regulatory commission jointly imposed administrative penalties on pwc in accordance with article 29 of the administrative penalty law, which states that "administrative penalties of fines shall not be imposed more than twice for the same illegal act of a party. if the same illegal act violates multiple legal norms and should be punished with fines, the higher amount of the fine shall be imposed." the china securities regulatory commission imposed the maximum penalty of confiscation of illegal gains and a ten-fold fine on pwc for its illegal acts in 2019 and 2020 in accordance with the securities law. the ministry of finance imposed the maximum property penalty of confiscation of illegal gains and a five-fold fine on pwc for its illegal acts in 2018 in accordance with the certified public accountants law. at the same time, the ministry of finance imposed a penalty of suspending pwc's business for 6 months and revoking its guangzhou branch in accordance with the certified public accountants law, and the china securities regulatory commission absorbed the qualification penalty on pwc into the penalty imposed by the ministry of finance.

q: please introduce the situation of holding auditors of china evergrande group accountable.

a: china evergrande group is registered overseas and the audit report is issued by pricewaterhousecoopers (hereinafter referred to as pricewaterhousecoopers) in hong kong. since pricewaterhousecoopers is a hong kong accounting firm, its regulatory authority belongs to the hong kong regulatory authorities. in accordance with relevant laws and regulations, the ministry of finance will actively coordinate and cooperate with the hong kong accounting and financial reporting authority to investigate and deal with pricewaterhousecoopers' illegal acts through the cross-border audit supervision cooperation mechanism.

q: please explain the specific considerations for imposing administrative penalties on pwc and its guangzhou branch.

answer: the inspection found that the evergrande real estate audit project was signed by pricewaterhousecoopers with a business agreement and an audit report, and that all quality control procedures implemented by pricewaterhousecoopers for the evergrande real estate audit project did not correct the relevant illegal issues. pricewaterhousecoopers should bear the main responsibility for the audit project. at the same time, the evergrande real estate audit project was specifically implemented by pricewaterhousecoopers guangzhou branch, and the relevant signing certified public accountants were all staff members of pricewaterhousecoopers guangzhou branch. pricewaterhousecoopers guangzhou branch should bear direct responsibility for the relevant issues.

in terms of the discretion of administrative penalties, the ministry of finance insisted on abiding by laws and regulations and imposing commensurate penalties. it imposed the maximum property penalty on pricewaterhousecoopers for its illegal gains in the evergrande real estate audit project, imposed the maximum penalty of revoking its qualifications on the guangzhou branch that bore direct audit responsibility, and imposed a severe penalty of suspending its business for six months on pricewaterhousecoopers that bore the main audit responsibility.

q: please explain the specific considerations for imposing administrative penalties on the relevant certified public accountants of pricewaterhousecoopers.

answer: in this case, the ministry of finance imposed administrative penalties on 11 certified public accountants. among them, tang zhenfeng, wei ze, zhu liwei, and cai xiujuan were the signing certified public accountants of the audit reports of evergrande real estate's relevant financial statements from 2018 to 2020, and they were directly responsible. the ministry of finance imposed administrative penalties on them by revoking their certified public accountant certificates in accordance with the certified public accountants law. although chen yuntao, wu de'en, pan guowei, chen zhijie, chen junyu, lu yujie, and jin ying, 7 certified public accountants, did not sign the audit report of evergrande real estate, they participated in the audit project and had problems in preparing financial accounting reports for evergrande real estate. the ministry of finance imposed administrative penalties of warnings or fines on them in accordance with the "accounting firm practice license and supervision and management measures" (ministry of finance order no. 97). at the same time, for the members of the communist party of china among the above-mentioned certified public accountants, the ministry of finance will inform the grassroots party organizations where they are affiliated with their organizations of their illegal acts, and the grassroots party organizations will deal with them in accordance with the "regulations on disciplinary actions of the communist party of china".

q: please introduce the follow-up work arrangements of the ministry of finance.

a: for other issues found during the inspection, the ministry of finance will issue a rectification notice to pwc in accordance with relevant laws and regulations. any clues of suspected crimes found during the inspection will be transferred to relevant judicial departments for investigation and handling. the ministry of finance will urge pwc to strictly implement relevant administrative penalty measures, earnestly carry out rectification work, and effectively improve the quality of practice. at the same time, the ministry of finance will thoroughly implement the decisions and arrangements of the party central committee and the state council on cracking down on financial fraud and audit fraud, continue to increase supervision and inspection efforts, and severely investigate and punish any accounting and audit fraud found, ensure that supervision is "thorny" and has edges and corners, effectively strengthen financial supervision, and strictly enforce financial discipline, and promote the healthy and sustainable development of the cpa industry.

china securities regulatory commission punishes evergrande real estate's auditing agency pricewaterhousecoopers in accordance with law

according to the website of the china securities regulatory commission, the china securities regulatory commission recently imposed administrative penalties on pricewaterhousecoopers for failing to perform its duties diligently in the audit of evergrande real estate's annual report and bond issuance. in accordance with the provisions of the "securities law of the people's republic of china", pricewaterhousecoopers' entire business income of 27.74 million yuan during the period involved in the case was confiscated, and a maximum fine of 297 million yuan was imposed, for a total of 325 million yuan in fines and confiscations.

in may 2024, the china securities regulatory commission imposed severe administrative penalties on evergrande real estate, a corporate bond issuer, for financial fraud, fraudulent issuance and other illegal acts, and determined that evergrande real estate's 2019 and 2020 annual reports contained false records, and the relevant five corporate bond issuances constituted fraudulent issuances. pricewaterhousecoopers was the auditing agency of evergrande real estate during the above period. i will conduct an investigation in accordance with legal procedures to determine whether pricewaterhousecoopers violated the provisions of the securities law of the people's republic of china by providing audit services to evergrande real estate and preparing and issuing relevant documents during the above period.

our investigation found that pwc failed to perform due diligence in the audit of evergrande real estate's 2019 and 2020 annual reports. it violated many audit standards and audit requirements during the audit process, and many audit procedures failed to work. it failed to maintain due professional skepticism, failed to make correct professional judgments, and failed to discover evergrande real estate's large-scale and high-proportion financial fraud. first, the audit working papers were distorted. about 88% of the records in the real estate project observations were inconsistent with the actual implementation, and the contents of the working papers were seriously unreliable. second, the on-site visit procedures failed. most of the real estate projects that were considered to meet the delivery conditions during the on-site visits were not actually completed and delivered. some of them were still not completed and delivered when our on-site investigation was carried out, and were even "a piece of vacant land." third, the scope of sample selection was out of control, allowing evergrande real estate to replace samples, and excluding real estate projects marked as "not allowed to go" by evergrande real estate from the visit samples. fourth, the document inspection procedures failed, and the delivery list that was verified to be normal actually had a large number of owners signing and confirming dates later than the balance sheet date. fifth, the review procedure failed, the on-site visit procedure review work became a formality, and the reviewers issued the review conclusion based on their "trust" in the visiting personnel.

pwc issued a standard unqualified audit report for evergrande real estate's 2019 and 2020 annual reports, and issued a statement guaranteeing the truthfulness, accuracy and completeness of the financial data for evergrande real estate's five bond issuances, namely 20 evergrande 02, 20 evergrande 03, 20 evergrande 04, 20 evergrande 05 and 21 evergrande 01. the documents produced and issued by pwc contained false records.

the above-mentioned behavior of pricewaterhousecoopers violates article 163 of the securities law of the people's republic of china and constitutes the situation of "failing to perform due diligence and the documents produced and issued contain false records" as stated in the third paragraph of article 213 of the securities law of the people's republic of china. the china securities regulatory commission has ordered it to correct its behavior in accordance with the law and determined that all business income of rmb 27.74 million from pricewaterhousecoopers' one bond issuance audit, two annual report audits, two semi-annual reviews and six special purpose audits of evergrande real estate during the above-mentioned period were illegal business income, which were all confiscated in accordance with the law. in addition, a maximum fine of rmb 277 million was imposed on pricewaterhousecoopers based on the principle of "ten times the amount confiscated". at the same time, a maximum fine of rmb 20 million was imposed on pricewaterhousecoopers for the four unpaid bond issuance audit services. the total amount of fines and confiscations from pricewaterhousecoopers was rmb 325 million.

during the investigation and handling of the case, i strengthened communication and close cooperation with the ministry of finance, shared information and strengthened joint efforts. in terms of penalty discretion, i confiscated all business income of pricewaterhousecoopers for two years in accordance with the law and imposed the maximum fine, and cooperated with the ministry of finance to impose a total fine of 441 million yuan; in terms of "qualification penalty", given that the ministry of finance has imposed an administrative penalty of suspending business operations on pricewaterhousecoopers, and the scope of the suspension of business covers the securities field, i will not impose an additional administrative penalty of suspending securities services business.

in the next step, i will continue to resolutely implement the requirements of "strong and thorny" supervision, emphasize strict supervision and management, and continue to increase the investigation and crackdown on financial fraud in the capital market and the failure of audit institutions to perform their duties diligently, make every effort to maintain the stable operation of the capital market, and protect the legitimate rights and interests of investors, providing strong guarantees for the high-quality development of the capital market.

officials of the china securities regulatory commission answer questions from reporters regarding the administrative penalty case against pricewaterhousecoopers

recently, the china securities regulatory commission made an administrative penalty decision against pricewaterhousecoopers zhongtian llp (hereinafter referred to as pricewaterhousecoopers) for failing to perform due diligence in the audit of evergrande real estate's annual report and bond issuance. relevant officials of the china securities regulatory commission answered reporters' questions about the investigation and handling of the case and related circumstances.

q: recently, the china securities regulatory commission imposed administrative penalties on pricewaterhousecoopers. can you introduce the relevant circumstances of the case?

a: in recent years, our commission has maintained a high-pressure stance against illegal activities in the securities market, focusing on key issues, cracking down on financial fraud, fraudulent issuance and other behaviors, and strictly enforcing the responsibilities of issuers and intermediaries. earlier, our commission severely imposed administrative penalties on evergrande real estate for illegal activities such as false records in its 2019 and 2020 annual reports and fraudulent issuance of corporate bonds.

pricewaterhousecoopers was the audit firm of evergrande real estate during the above-mentioned period. i will investigate whether pricewaterhousecoopers violated the provisions of the securities law of the people's republic of china in providing audit services to evergrande real estate and preparing and issuing relevant documents during the above-mentioned period. focusing on key matters of audit practice and key links of due diligence, i will conduct in-depth on-site investigations and evidence collection, conduct comprehensive inquiries and interviews, fully retrieve relevant documents and materials, and strive for support and assistance from relevant parties to complete the investigation efficiently and in accordance with the law.

after investigation, it was found that pwc failed to perform its duties diligently and violated multiple auditing standards in the process of performing the audit of evergrande real estate's 2019 and 2020 annual reports and bond issuance services, and multiple auditing procedures failed. first, the audit working papers were distorted. about 88% of the records in the real estate project observations were inconsistent with the actual implementation, and the contents of the working papers were seriously unreliable. second, the on-site visit procedure failed. most of the real estate projects that were considered to meet the delivery conditions during the on-site visit were actually not completed and delivered. some of them were still not completed and delivered when our association conducted on-site investigations, and were even "a piece of vacant land." third, the scope of sample selection was out of control, allowing evergrande real estate to replace samples, and excluding real estate projects marked as "not allowed to go" by evergrande real estate from the visit samples. fourth, the document inspection procedure failed. for example, when verifying the delivery list without abnormalities, in fact, a large number of owners signed and confirmed the date later than the balance sheet date. fifth, the review procedure failed. the on-site visit procedure review work was perfunctory, and the review personnel issued the review conclusion based entirely on the "trust" of the on-site visit personnel.

on the one hand, pwc failed to perform its duties diligently, failed to correctly judge the actual situation of evergrande real estate's overall revenue recognition in 2019 and 2020, failed to maintain reasonable professional suspicion of the abnormalities in evergrande real estate's financial data, failed to effectively identify evergrande real estate's large-scale and high-proportion financial fraud, and even turned a blind eye to the signs and trends of evergrande real estate's financial fraud; on the other hand, it issued a standard unqualified audit report and issued a statement guaranteeing the truthfulness, accuracy and completeness of the financial data for five bond issuances, which was a situation where the documents produced and issued contained false records.

question: how does the punishment on pwc reflect its "fangs and thorns" and sharp edges, and respond to the expectations of the market and society?

a: the above-mentioned behavior of pricewaterhousecoopers is not just a simple audit dereliction of duty or failure. it has, to a certain extent, covered up and even condoned evergrande real estate's financial fraud and fraudulent issuance of corporate bonds, which has seriously eroded the legal and honest basis, seriously damaged the legitimate rights and interests of investors, and seriously undermined market confidence. it should be severely punished according to law. at the same time, i will insist on handling cases in accordance with the law, strictly follow procedures, take facts as the basis, and the law as the criterion, comprehensively consider the facts, nature and degree of social harm of its violations, and within the scope of the law, impose strict and severe penalties, and ensure that the penalties are commensurate with the crimes.

first, all business income was confiscated. during this period, pwc not only audited evergrande real estate's two-year annual report and provided audit services for evergrande real estate's bond issuance, but also performed two semi-annual reviews and six special purpose audits. our commission determined that the business income of 27.74 million yuan collected under the above items was all illegal business income and confiscated it in full according to law.

the second is to impose the maximum fine. according to the securities law of the people's republic of china, the commission imposed a fine of 10 times the illegal business income of pricewaterhousecoopers, totaling 277.4 million yuan, and imposed a maximum fine of 5 million yuan each time for the four unpaid bond issuance audit services, totaling 20 million yuan. the total fines and confiscations from pricewaterhousecoopers amounted to 325 million yuan, which is close to the total fines and confiscations imposed by the commission on more than 50 accounting firms that violated laws and regulations in the previous three years.

question: in recent years, the csrc has imposed penalties on many auditing institutions. this time, it issued a "record-breaking" fine to pricewaterhousecoopers. what are the csrc's considerations?

answer: the securities law of the people's republic of china and other laws and regulations require that securities business activities such as the issuance, listing and trading of securities should be subject to professional opinions from accounting firms and other securities service institutions. the mandatory requirements of the law not only provide opportunities for the development of the industry, but also define the legal obligations and legal responsibilities of intermediaries, and also carry the trust of the entire market and the trust of investors.

over the years, accounting firms and other securities service institutions have played an important role and made important contributions by leveraging their professional advantages to enhance the level of standardized operations of enterprises, improve the quality of accounting information of listed companies and other securities issuers, and promote the healthy development of the securities market.

supervision and law enforcement is our statutory duty. for a few intermediary institutions and personnel who test the law, we will resolutely implement the "long teeth and thorns" and "angular" requirements, strictly supervise and manage, make full use of legal authorization, strictly enforce the law, and deal with them seriously. if accounting firms and other securities service institutions are careless and negligent in their practice, or even "just for show" or "going through the motions", fail to be diligent and responsible, and produce and issue documents with false records, misleading statements or major omissions, they may have their illegal business income confiscated and be fined several times or even the maximum amount. in serious cases, they may be restricted from practicing, resulting in zero income, loss of business, or even a reputation crisis.

one punishment serves as a warning to a hundred. we hope that all intermediary institutions will take this as a warning, be cautious and fulfill the obligations required by the law without fail, always be diligent and responsible, truly be professional, practice prudently, cherish their reputation, express opinions objectively, independently and professionally, ensure that the documents they produce do not contain false records, misleading statements or major omissions, live up to the trust of the public, and truly shoulder the responsibilities of "gatekeepers" of the securities market.

q: please introduce the collaboration between the csrc and the ministry of finance in case investigation and handling.

answer: pwc provides audit services for evergrande real estate's bond issuance and trading activities, which are regulated by the securities law of the people's republic of china. at the same time, as an audit firm, pwc is also subject to the certified public accountants law of the people's republic of china.

in the investigation and handling of the pwc case, the csrc strengthened communication and close cooperation with the ministry of finance, shared information, and strengthened joint efforts. in the administrative penalty stage, the csrc confiscated all of pwc's illegal business income in the relevant years in accordance with the law and imposed the maximum fine. at the same time, the csrc cooperated with the ministry of finance to impose a "qualification penalty" on pwc. pwc's illegal behavior was serious and it should be suspended from engaging in securities services. given that the ministry of finance has imposed a "qualification penalty" on pwc to suspend its business operations, and the scope of the suspension of business covers the securities field, the csrc will not impose an additional administrative penalty on pwc to suspend its securities services business.

it should be noted that the securities market is centered on information disclosure. the legal liability of issuers for illegal acts is based on their information disclosure documents, and the legal liability of audit institutions for illegal acts is based on the documents they produce and issue. in this case, pricewaterhousecoopers produced and issued the documents and stamped them, and the relevant certified public accountants signed them, making them the legally responsible subjects stipulated in the securities law of the people's republic of china. as the competent authority of the certified public accountant industry, the ministry of finance conducts comprehensive supervision over the practice quality and project quality control of audit institutions, the governance of audit institutions and personnel management, and can fully hold pricewaterhousecoopers and its branches, the signing certified public accountants, and other certified public accountants involved in the audit project accountable.

i support the ministry of finance in holding pricewaterhousecoopers accountable for illegal acts in the audit project of evergrande real estate in 2018, which is difficult to be held accountable under the securities law of the people's republic of china. at the same time, i also pay attention to the ministry of finance's decision to punish pricewaterhousecoopers guangzhou branch and other related certified public accountants.

question: some people in the market are still concerned about the illegal activities of evergrande group and its auditing agency and their accountability. what do you think about this issue?

a: evergrande real estate is a domestic legal person that publicly issues corporate bonds in the domestic exchange bond market. according to the securities law of the people's republic of china, our association is responsible for supervising the issuance and trading of corporate bonds of evergrande real estate and the securities services business of its auditing agency pricewaterhousecoopers. it is not only within the scope of our authority but also our responsibility to investigate and deal with the fraudulent issuance of evergrande real estate, illegal information disclosure and the failure of its auditing agency pricewaterhousecoopers to perform due diligence.

evergrande group is a foreign legal person, listed on the hong kong stock exchange. evergrande group's issuance and listing of securities in hong kong and the practice of its auditing agency are subject to the laws of hong kong. we have noticed that the relevant regulatory authorities in hong kong have recently stated that they are conducting an independent investigation into the relevant audits of evergrande group's auditing agency. if the relevant parties in hong kong make a request in the future, i will work with the ministry of finance through cross-border law enforcement cooperation mechanisms and channels to actively cooperate with the relevant parties in investigating and handling relevant illegal acts.