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the regulator issued a "maximum" fine to pricewaterhousecoopers. on september 13, the china securities regulatory commission announced that it had imposed administrative penalties on pricewaterhousecoopers for failing to perform due diligence in the audit of evergrande real estate's annual report and bond issuance. according to the securities law, all business income of pricewaterhousecoopers during the period involved in the case was confiscated, totaling 27.74 million yuan, and a maximum fine of 297 million yuan, for a total of 325 million yuan in fines and confiscations.

"(a fine of 325 million yuan) is close to the total amount of fines and confiscations imposed by our association on more than 50 accounting firms that violated laws and regulations in the past three years," said a relevant official of the csrc.

in accordance with the certified public accountants law of the people's republic of china, the ministry of finance imposed administrative penalties of confiscation of illegal gains and a total fine of 116 million yuan on pricewaterhousecoopers for its illegal acts in the audit project of evergrande real estate in 2018. the china securities regulatory commission and the ministry of finance jointly imposed fines totaling 441 million yuan.

in accordance with the certified public accountants law of the people's republic of china, the ministry of finance imposed administrative penalties on pricewaterhousecoopers, including a warning, suspension of its business for six months, and the revocation of its guangzhou branch.

regarding certified public accountants, the ministry of finance, in accordance with the "certified public accountants law of the people's republic of china", imposed the penalty of revoking the certified public accountant certificates of tang zhenfeng, wei ze, zhu liwei and cai xiujuan, the four signing certified public accountants who wrote the audit reports on the relevant financial statements of evergrande real estate from 2018 to 2020; in accordance with the "accounting firm practice license and supervision and management measures" (ministry of finance order no. 97), seven certified public accountants who participated in the preparation of evergrande real estate's consolidated financial statements, including chen yuntao, wu de'en, pan guowei, chen zhijie, chen junyu, lu yujie and jin ying, were given administrative penalties of warnings or fines.

interestingly, pwc withdrew its apology statement immediately after it was issued, and a careful reader discovered the typos in it.

involving five major violations

in may this year, 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. the china securities regulatory commission conducted 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 in providing audit services to evergrande real estate and preparing and issuing relevant documents during the above period.

the investigation by the china securities regulatory commission found that pwc failed to perform its duties diligently in performing the audit of evergrande real estate's 2019 and 2020 annual reports. it violated a number of audit standards and requirements during the audit process, and made a number of audit procedures invalid. it failed to maintain due professional skepticism, failed to make correct professional judgments, and failed to discover the large-scale and high-proportion financial fraud of evergrande real estate.

first, the audit working papers were distorted. about 88% of the records in real estate project observations were inconsistent with the actual implementation, and the content of the working papers was seriously unreliable.

second, the on-site visit procedure was ineffective. most of the properties that were considered to meet the delivery conditions during the on-site visits had not actually been completed and delivered. some had still not been completed and delivered when the csrc conducted an on-site investigation, and some were even "a piece of vacant land."

third, the scope of sample selection was out of control, and evergrande real estate was allowed to replace samples, and real estate projects marked by evergrande real estate as "not allowed to visit" were excluded from the visit samples.

fourth, the document checking procedure failed, and although there were no abnormalities in the delivery list, 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 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.

when answering reporters' questions, a relevant person in charge of the china securities regulatory commission pointed out that, 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-amount 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.

pwc china and pwc zhongtian issued a statement, fully cooperating with the regulatory authorities' inspection work, respecting and resolutely obeying the relevant administrative penalty decisions. pwc recognizes that the audit of evergrande real estate did not meet the high standards that pwc has always adhered to and the expectations of all sectors of society. pwc is determined to learn from this, reflect deeply, and learn lessons comprehensively. pwc deeply apologizes for the impact this incident has brought to our clients and everyone, and will do its best to win back everyone's trust.

the maximum fine of "ten times the amount of one crime" is 441 million yuan

the csrc pointed out that the above-mentioned behavior of pricewaterhousecoopers violated the provisions of article 163 of the securities law of the people's republic of china and constituted the situation of "failing to perform due diligence and the documents produced and issued contained false records" as stated in the third paragraph of article 213 of the securities law of the people's republic of china. the csrc 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 according to the "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 on pricewaterhousecoopers was rmb 325 million.

the ministry of finance said that since january 2024, the ministry of finance has organized an inspection team to conduct a special inspection on the practice quality of audit projects of evergrande real estate group co., ltd. of pricewaterhousecoopers zhongtian accounting firm and its guangzhou branch. today, the ministry of finance made an administrative penalty decision on pricewaterhousecoopers, confiscating illegal gains and imposing a fine of 116 million yuan for its illegal acts involving the 2018 audit project of evergrande real estate.

during the investigation and handling of the case, the csrc and the ministry of finance strengthened communication and close cooperation, shared information, and strengthened their joint efforts. in terms of penalty discretion, the csrc 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, the csrc will not impose an additional administrative penalty of suspending securities services business.

in this case, the ministry of finance imposed administrative penalties on a total of 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 to revoke their certified public accountant certificates in accordance with the certified public accountants law. although 7 certified public accountants, including chen yuntao, wu de'en, pan guowei, chen zhijie, chen junyu, lu yujie, and jin ying, 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. 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."

a relevant person in charge of the csrc expressed that the punishment is a warning to all, and he hopes that the majority of intermediary institutions will take it 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.

in the next step, the csrc will continue to resolutely implement the requirements of "thorny and sharp" 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.

the ministry of finance said that in response to other problems found during the inspection, the ministry of finance will issue a rectification notice to pricewaterhousecoopers 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 pricewaterhousecoopers 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 certified public accountant industry.

in addition, the relevant person in charge of the csrc mentioned that 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, the csrc has the responsibility to supervise the issuance and trading activities of evergrande real estate's corporate bonds and the securities services business of its auditing agency pricewaterhousecoopers. investigating and punishing evergrande real estate's fraudulent issuance, illegal information disclosure, and the failure of its auditing agency pricewaterhousecoopers to perform due diligence is not only within the csrc's authority, but also its responsibility.

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. relevant regulatory agencies in hong kong recently stated that they are conducting an independent investigation into the relevant audits of evergrande group's auditing agency. if relevant parties in hong kong make a request in the future, the my country securities regulatory commission will work with the ministry of finance through cross-border law enforcement cooperation mechanisms and channels to actively cooperate with relevant parties in investigating and handling relevant illegal acts.

the ministry of finance said that regarding the responsibilities of pricewaterhousecoopers hong kong in providing audit services to china evergrande group, the ministry of finance will actively coordinate and cooperate with the hong kong accounting and financial reporting authority to investigate and deal with related illegal acts through the cross-border audit supervision cooperation mechanism.

the hong kong accounting and finance bureau said that with the completion of the ministry of finance's investigation into evergrande real estate's mainland audit work, the bureau's independent investigation into pricewaterhousecoopers hong kong's audit of china evergrande group, which was conducted simultaneously, will continue in an orderly manner.