China asks large state financial institutions to drop auditor PwC, say sources

PICC Property And Casualty

05/08/2024 08:24

By Julie Zhu
       HONG KONG, Aug 5 (Reuters) - Chinese regulators have in
recent months asked several large state-owned clients of
PricewaterhouseCoopers (PwC) to drop the auditor as it braces
for penalties over its work for troubled property developer
Evergrande, said two sources.
    The regulators, mainly the Ministry of Finance (MOF), have
given so-called "window guidance", or unofficial, verbal
instructions to big state-owned financial institutions since at
least April, said the sources who declined to be identified as
the information was confidential.
     Bank of China (BOC), China Life Insurance, PICC, China
Taiping Insurance and China Cinda Asset Management, are now
among the more than 30 listed Chinese companies that have axed
PwC as auditor this year, according to a Reuters calculation
based on corporate filings.
    PwC declined to comment. The MOF did not respond to a faxed
request for comment. BOC, China Life, PICC, China Taiping and
China Cinda did not immediately respond to a request for
comment. 
    The MOF is the biggest shareholder in more than 20 large
state financial institutions including the Big Five banks, four
insurers and four bad debt managers, with stakes held directly
or via other state entities such as Central Huijin. The ministry
is also the primary regulator of auditors in China.
    It is not immediately clear if all state firms had received
the "window guidance" from the ministry or other government
bodies. 
    The sources said the guidance was one of the main reasons
for the client exodus from PwC, putting further pressure on the
company that has responded by cutting staff numbers and halving
the pay of some senior partners.
    BOC, China Life and PICC were among PwC's biggest clients in
terms of accounting fees, which last year paid nearly 200
million yuan ($28 million), 64 million yuan and 41 million yuan,
respectively, the filings showed.
            
    CLIENT EXITS
    Other state-owned companies including top energy producer
PetroChina and leading railway and highway builder China Railway
Group have also recently ditched PwC.
    China Telecom, another large client, last week said it was
looking to appoint KPMG as its external auditor for 2024,
replacing PwC in the middle of the financial year.
    Non-state clients have also been affected. Shenzhen-listed
Mindray Bio-Medical Electronics and Shanghai-listed Eastroc
Beverage in May both canceled plans to reappoint the firm as
their auditor, according to their filings. 
    Last year, the MOF and other regulators said state-owned
firms and listed companies should be "extremely cautious" about
hiring auditors that have received regulatory fines or other
penalties in the past three years.
    PwC has been under a lot of pressure lately as a result of
its work for China Evergrande Group, which was ordered to be
liquidated in January after it defaulted on debt repayment
obligations.
    Chinese authorities have been probing PwC's role in auditing
Evergrande after the securities regulator accused the troubled
property developer in March of a $78-billion fraud.
    PwC had been Evergrande's auditor for almost 14 years until
it resigned in early 2023.
    As auditor for about 110 domestically-listed companies as of
March this year, per its website, PwC has built a substantial
presence in China over the last couple of decades, with business
interests ranging from auditing, consulting to tax services. 
    It was also the market leader among all accounting firms in
the country, with main onshore arm PwC Zhong Tian LLP recording
revenues of 7.92 billion yuan in 2022, making it China's
top-earning auditor that year, according to official figures.

($1 = 7.1600 Chinese yuan renminbi)

 (Reporting by Julie Zhu; Additional reporting by Xie Yu;
Editing by Miral Fahmy)
 ((julie.zhu1@thomsonreuters.com;))