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PwC China has shunned more high-profile clients in the country as the Big Four accounting firm braces for sanctions related to an audit of distressed property developer Evergrande.
China Merchants Bank, a leading retail lender, said it plans to switch its accounting firm to EY from Deloitte for its onshore and offshore audit in 2024, according to a stock exchange filing on Monday. The appointment of Deloitte was a reversal of the bank’s decision last September to hire PwC China.
Also this week, China Railway Group, a major government construction conglomerate, changed its auditor and internal control auditors for 2024 to PwC’s Deloitte, according to another filing. China Railway said this was due to the company’s “existing business condition, development needs and overall audit needs”.
The two are the latest to quit PwC in recent months as the companies consider its uncertain future in China with a change in leadership and potential sanctions from authorities. Regulators also reiterated last year that state-owned enterprises and listed companies typically should not hire auditors who have suffered significant fines or other punishment within three years.
China’s securities regulator in March accused Evergrande of inflating its onshore revenue by nearly $80 billion over two years before the developer defaulted on its debts in 2021. This is despite PwC giving the accounts a clean chit, leading to fears it could face one of the biggest fines ever levied on a big four accountancy firm in China, as well as other sanctions.
In early May, state-owned insurance group PICC said it had fired PwC as auditor after just three years and hired EY instead. In the same week, Shanghai-listed Eastroc Beverage canceled a shareholder vote that would have reappointed the firm as its auditor, saying it needed to “further verify related matters regarding the accounting firm”.
Under current regulations, Chinese state-owned enterprises must change auditors every eight years. Listed companies need to change auditors no more than once every 10 years. 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 changed auditors from PwC as they hit those limits, according to stock exchange filings. PwC China did not reach the maximum 8 or 10 years 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 in some cases been reappointed or won new contracts. China Merchants China Direct Investments selected the firm as auditor after its annual meeting last week, while Hong Kong-listed technology companies Meituan and Kanzhun reappointed PwC as auditors at their recent board meetings. Listed companies still have months to decide on auditors for the 2024 accounts.
In recent weeks, Chinese rivals, including other Big Four accounting firms, have been exploring bids to acquire PwC clients, two people familiar with the matter said.
PwC has a “very capable posture” in China, more so than other members of the Big Four, said one former Chinese partner of the firm.
It also has a size advantage after merging with Arthur Andersen in 2002, a senior figure at the rival firm said. PwC counts dozens of major Chinese companies among its clients, including another major developer, Country Garden, which ran into trouble after China’s real estate liquidity crisis began in 2021.
PwC China now has “increased association risk” after the Evergrande audit, a former partner said. “Losing clients can create a domino effect,” added another.
Additional reporting by Stephen Foley in New York, Simon Foy in London and Wenjie Ding in Beijing