Hong Kong accounting watchdog initiates probe into PwC audits of bankrupt developer Evergrande

Last Updated on April 20, 2024 9:02 am

Hong Kong’s accounting watchdog said it will investigate accounting firm PwC for alleged auditing fraud related to bankrupt Chinese developer China Evergrande Group, adding that it would not hesitate to take enforcement action.

The Accounting and Financial Reporting Council (AFRC) said in a statement on Friday that it had taken note of the whistleblower’s allegations about PwC that circulated in the media earlier in the week.

An anonymous letter expressed concerns regarding potential alleged deficiencies in PwC’s systems of quality management and the quality of Evergrande’s audit, the AFRC said.

“Given the gravity of these allegations and the necessity to safeguard the interests of the investing public, the broader public interest in the auditing of listed entities, and to maintain public confidence in the integrity of the accounting profession, the AFRC is obliged to initiate an investigation.”

In cases where firms or individuals have committed misconduct or violated the Accounting and Financial Reporting Council Ordinance, the AFRC said it “will not hesitate to take stringent enforcement actions”.

The AFRC noted that the allegations made by the whistleblower include PwC’s failure to establish and maintain an effective system of quality control, non-compliance with professional standards when conducting client relationships with Evergrande, inadequate personnel assignments in key positions, and insufficient audit procedures for Evergrande’s audits.

The move came after PwC refuted the accusations in the letter. On Tuesday, PwC said that the claims were “clearly contradictory to the facts” and that it has taken measures to investigate the origins of the “false information”.

The AFRC, formerly the Financial Reporting Council, had previously said it would look into Evergrande’s 2020 accounts and their audit by PwC.