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Top Clients Abandon PwC China as Big Four Rivals Circle
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PwC China has been shunned by the country’s most prominent clients as the Big Four accounting firm braces for penalties related to its audit of struggling property developer Evergrande.
China Merchants Bank, a major retail lender, said it plans to switch its accounting firm from Deloitte to EY for its 2024 onshore and offshore audit, according to an exchange filing on Monday. Deloitte’s appointment was a reversal of the bank’s decision last September to hire PwC China.
Also this week, China Railway Group, a large state-owned construction conglomerate, moved its 2024 auditor and internal control auditors to Deloitte from PwC, according to another document. China Railway said this was due to the company’s “existing business status, development needs and general audit needs”.
The two are the latest to leave PwC in recent months as the companies consider their uncertain future in China, with a change in leadership and possible sanctions imposed by authorities. Regulators also reiterated last year that state-owned companies and listed companies should not normally hire auditors who have faced significant fines or other punishments within three years.
China Securities Regulator in March accused Evergrande from inflating its revenues on the continent by almost US$80 billion in the two years before the developer defaulted on its debts in 2021. This was despite PwC giving the accounts a clean bill of health, leading to fears which could face one of the largest fines ever imposed on a Big Four accounting firm in China, as well as other sanctions.
In early May, state insurance group PICC said it had sacked PwC as auditor after just three years, hiring EY. The same week, Shanghai-listed Eastroc Beverage canceled a shareholder vote that would have reappointed the company as its auditor, saying it needed to “further verify related issues surrounding the accounting firm.”
Chinese state-owned enterprises are required to change auditors once every eight years under current regulations. Listed companies need to change auditors once every 10 years at most. In recent weeks, Hong Kong-listed China Taiping Insurance, China Electronics Huada Technology, Qingdao Port International and Shanghai-listed National Silicon Industry Group and Tsingtao Brewery have changed PwC auditors as they hit these thresholds , according to exchange documents. PwC China has not reached the eight or 10 year maximum for PICC, China Railway or Eastroc.
PICC, Eastroc, China Merchants Bank and China Railway did not respond to requests for further comment. PwC China declined to comment on client matters.
However, PwC China has been renamed or won new business in some cases. China Merchants China Direct Investments appointed the company as auditor after its annual meeting last week, while Hong Kong-listed technology companies Meituan and Kanzhun reappointed PwC as auditor at their recent board meetings. Listed companies still have months to decide on auditors for their 2024 accounts.
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In recent weeks, Chinese rivals, including four other major accounting firms, have been weighing proposals to win PwC clients, two people familiar with the matter said.
PwC has a “very positive attitude” in China, more so than other members of the Big Four, said a former Chinese partner at the firm.
It also has a size advantage following its merger with Arthur Andersen in 2002, said a senior figure at a rival firm. PwC counts dozens of major Chinese companies among its clients, including another major property developer, Country Garden, which was left in trouble after the start of China’s property liquidity crisis in 2021.
PwC China now has a “high association risk” following the Evergrande audit, the former partner said. “Losing customers could trigger a domino effect,” the second person added.
Additional reporting by Stephen Foley in New York, Simon Foy in London and Wenjie Ding in Beijing