Chinese authorities have banned the accounting firm PwC for six months and fined it over 400 million yuan ($56.4 million) over its involvement in the audit of collapsed property developer Evergrande.

The punishment is the heaviest yet for international accounting firms operating in China. PwC will be banned from signing off on any financial results in the country for six months. Already, it has been losing clients.

China's Ministry of Finance said in a statement on Friday (September 13, 2024) that it was imposing 116 million yuan ($16.35 million) in fines and confiscation of illegal gains on PwC Zhong Tian, also known as PwC China, as well as a six-month business suspension, revocation of PwC's Guangzhou branch and an administrative warning.

A separate regulator, the China Securities Regulatory Commission, also imposed fines and confiscations totaling 325 million yuan ($45.8 million) on PwC for allegedly failing to perform due diligence in the audit of Evergrande.

China's finance ministry said PwC issued "false audit reports" of Evergrande and that the audit procedures had “serious defects” in design and implementation, leading to many false conclusions. It also accused PwC of not maintaining “professional skepticism” and failing to point out errors and a lack of information disclosure by Evergrande during the audits.

The securities regulator said 88% of the records kept by PwC regarding the real estate projects were inconsistent with the actual implementation and were “seriously unreliable.” When on-site investigations were carried out, some projects were still “a piece of vacant land” despite being considered to have met the delivery conditions, the regulator said.

“The work performed by PwC Zhong Tian’s Hengda audit team fell well below our high expectations and was completely unacceptable,” Mohamed Kande, global chair of PwC, said in a statement on its website. Hengda is the principal subsidiary of China Evergrande Group.

“It is not representative of what we stand for as a network and there is no room for this at PwC,” he said.

The statement said PwC Zhong Tian has cooperated fully with regulators, respects their decisions and will fully comply with the administrative penalties.

PwC China has fired six partners and five staff directly involved in the Hengda audit, it said. The firm is also in the process of issuing financial penalties for current and former firm leaders who were responsible for the business, the statement said.

PwC came under Beijing’s scrutiny after the January collapse of Evergrande, the world’s most indebted developer and a symbol of China’s ongoing property crisis.

China's securities regulator said in March that Evergrande had inflated its mainland China revenues by almost $80 billion in 2019 and 2020. In May, authorities fined the company $577 million.

PwC had audited Evergrande’s accounts for 14 years until 2023 and gave it a clean bill of health.

PwC has been the largest of the “big four” accounting firms operating in China, taking in nearly 8 billion yuan ($1.1 billion) in revenues in 2022, above competitors Deloitte, KPMG and EY, according to the Chinese Institute of Certified Public Accountants.

China has been cracking down on excessive borrowing by developers during a prolonged property market slump that has hit many other parts of the economy, including construction, building materials and home appliances.