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cailianshe news, september 13 (reporter li jie)after the debt risk of evergrande real estate broke out, pricewaterhousecoopers, as evergrande's auditing agency, was also caught in the vortex and severely punished by the regulatory authorities.

in accordance with relevant laws and regulations, starting from january 2024, the ministry of finance will organize an inspection team to conduct a special inspection on the practice quality of the audit projects of evergrande real estate group co., ltd. of pricewaterhousecoopers zhongtian accounting firm and its guangzhou branch.

on september 13, the ministry of finance issued a "maximum fine" to pricewaterhousecoopers. in terms of accounting firms, according to the "certified public accountants law of the people's republic of china", pricewaterhousecoopers was given an administrative penalty of confiscation of illegal gains and a fine of 116 million yuan for its illegal behavior in the 2018 audit project of evergrande real estate. at the same time, pricewaterhousecoopers was given an administrative penalty of a warning, suspension of business for 6 months, and the closure of pricewaterhousecoopers' guangzhou branch.

in addition, the csrc 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 rmb 27.74 million during the period involved in the case was confiscated, and the maximum fine of rmb 297 million was imposed, for a total of rmb 325 million in fines and confiscations.

all together, pwc was fined a total of 441 million yuan.

"the announcement of this penalty reflects that the regulatory authorities have a clearer understanding of evergrande's accounts, which will help with further audits and strict accountability in the future," yan yuejin, deputy director of the shanghai e-house real estate research institute, told reporters.

he further stated that evergrande's audit work and the administrative penalty on its accountants may have important implications for the audit work and accountability investigation of other real estate companies in trouble. "after a more in-depth understanding of evergrande's overall situation, whether other large real estate companies in trouble will face similar strict audits remains to be seen."

analysts point out that in the ever-changing capital market, accounting firms, as independent third-party auditing agencies, play a vital role as a "safety valve" and are therefore known as important "gatekeepers" of the capital market. however, if the audit fails to perform its duties, the audit agency may also bear its corresponding responsibilities.

it is worth noting thatin addition to facing penalties from regulators, pwc may also face prosecution by evergrande’s liquidators.

china evergrande’s liquidators have filed a lawsuit against pricewaterhousecoopers, accusing the accounting firm of “negligence” and “misrepresentation” in its work for evergrande, the financial times reported.

court documents obtained by the financial times show that lawyers for the liquidators launched legal proceedings against pwc hong kong and pwc zhongtian, the mainland china branch of pwc, in march. but the documents do not specify the amount the liquidators may sue for.

"evergrande's debt is large and complex, involving many financial institutions, suppliers and investors. under such circumstances, auditing agencies need to have a high degree of professionalism and rigorous auditing procedures to ensure the authenticity and accuracy of financial statements. during the evolution of evergrande's crisis, pricewaterhousecoopers, as its auditing agency, failed to fulfill its responsibilities and bears corresponding responsibility for causing such a crisis." said a real estate industry analyst.

according to information released by the csrc, the reasons for the punishment of pwc this time mainly include the following aspects. according to the investigation of the csrc, pwc failed to perform due diligence in the audit of evergrande real estate's 2019 and 2020 annual reports, violated multiple audit standards and requirements during the audit process, and multiple audit procedures 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 were invalid. most of the properties 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 the regulatory authorities conducted on-site investigations, and some were even "empty land."

third, the scope of sample selection was out of control, and evergrande real estate was allowed to replace samples, excluding real estate projects marked as "not allowed to visit" by evergrande real estate from the visit samples. fourth, the document inspection procedure failed, and the delivery list that was checked without abnormalities was actually signed and confirmed by a large number of owners later than the balance sheet date. fifth, the review procedure failed, and the on-site visit review work became a formality, and the reviewers issued review conclusions based on their "trust" in the visitors.

"this time, the regulatory authorities mentioned the 'multiple sins' of pricewaterhousecoopers' audit of evergrande's financial statements, which can be summarized as exaggerating sales revenue, inflating operating costs, inflating corporate profits, and concealing the true state of cash flow. basically, major mistakes were made in several important areas, which seriously violated professional ethics," said yan yuejin.

in addition to fines, in terms of certified public accountants, the ministry of finance has 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 signed the audit reports on the relevant financial statements of evergrande real estate from 2018 to 2020 in accordance with the "certified public accountants law of the people's republic of china"; in accordance with relevant management measures, seven certified public accountants including chen yuntao, wu de'en, pan guowei, chen zhijie, chen junyu, lu yujie, and jin ying who participated in the preparation of evergrande real estate's consolidated financial statements were given administrative penalties of warnings or fines.

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.

in response to the penalties imposed by the two departments, pwc china and pwc zhongtian said in a statement that pwc zhongtian fully cooperated with the regulatory authorities' inspections, respected and firmly obeyed the relevant administrative penalty decisions.

pwc said that after a detailed internal investigation, a series of rectification and accountability measures were taken. the punished evergrande real estate audit team members have terminated their labor relations with the company, and relevant members of the management team, including former members of the management team, are also required to assume management responsibilities.

evergrande group, once one of the giants in china's real estate industry, was ordered to be liquidated by the hong kong hearing court on january 29 this year.

at present, the liquidator of evergrande has filed a lawsuit in the name of china evergrande in the hong kong high court against the company's chairman xu jiayin, former ceo xia haijun, former chief financial officer pan dayong, xu jiayin's ex-wife ding yumei and three affiliated entities of xu jiayin and ding yumei, seeking dividends and remuneration totaling approximately us$6 billion.

as of september 5, the total amount of execution against evergrande real estate group co., ltd. has exceeded 79 billion yuan, and there are more than 710 pieces of information on the persons subject to execution.