Hong Kong regulator clears PwC over whistleblower claims but Evergrande probe continues

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Hong Kong’s audit regulator said it had not found evidence to support many of the explosive allegations against PwC made in an apparent whistleblower report over the firm’s work for collapsed Chinese property developer Evergrande.

The Accounting and Financial Reporting Council on Wednesday rejected claims that PwC’s business in Hong Kong had faulty quality controls and other deficiencies, findings that boost the Big Four accounting firm’s effort to quell client concerns triggered by its work.

The AFRC said it was still investigating PwC Hong Kong’s work for Evergrande itself, however, and PwC’s sister firm in mainland China is separately braced for penalties from Beijing as a result of its audit of an Evergrande subsidiary, the Financial Times previously reported.

The AFRC said it had reviewed PwC’s internal investigation into the allegations by anonymous whistleblowers claiming to be partners of the firm.

Three of the most serious claims — that the firm had ineffective quality controls and inappropriate oversight of audit quality, and that it had breached professional standards related to how it chooses clients — were not supported by the evidence, the regulator said.

“The AFRC has made this announcement in the light of the gravity of the public allegations, the potential impact on public confidence in the integrity of the accounting profession and the public interest involved,” it said.

PwC Hong Kong and PwC Zhong Tian, the mainland entity, operate under the same management and have both suffered client defections in recent months in the wake of regulatory investigations and public scrutiny over Evergrande.

In March, the China Securities Regulatory Commission accused Evergrande’s mainland business and its founder of inflating revenues by $78bn in the years before its collapse in 2021. 

PwC Hong Kong had been Evergrande’s auditor since its 2009 listing in the territory, while Hengda Real Estate, the developer’s mainland subsidiary, was audited by PwC Zhong Tian.

The two PwC businesses have together lost more than 30 publicly listed companies as audit clients this year, public filings show. PwC Hong Kong lost business from Chinese state-owned clients listed in the territory, including China Taiping Insurance and China Merchants Bank.

Raymund Chao, who had been head of the two PwC firms for nine years and whose leadership was criticised in the anonymous letter, retired at the end of last month. PwC previously said the letter contained “inaccurate statements and false allegations”.

The firm did not respond to a request for comment on AFRC’s findings on Wednesday.

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