Bank of China drops PwC for EY amid regulatory scrutiny over Evergrande audits
PwC loses major Chinese clients as regulatory investigations intensify
By Falito Villienuve Tandra, Salma Farah Faiza, and Iman Satyo Adi
August 23, 2024 at 16:30 GMT+7
PwC has lost its largest mainland China-listed client, Bank of China, to its rival EY, marking a significant shift amid ongoing regulatory scrutiny. The Bank of China, a state-owned financial giant, had initially planned to reappoint PwC as its auditor for 2024.
However, a recent filing revealed that the bank now intends to appoint EY instead, a decision that will soon be submitted for shareholder approval. This change comes as PwC faces a regulatory probe into its auditing work for China Evergrande Group, a property developer entangled in a massive US$78 billion fraud investigation.
PwC had been auditing Bank of China since 2021, following an eight-year stint by EY, in compliance with Chinese regulations that prevent state-owned firms from employing the same auditor for more than eight consecutive years. The shift to EY highlights the growing impact of regulatory pressures on PwC's business in China.
Bank of China, Beijing head office building | Source: SOHO
The departure of Bank of China from PwC’s client roster delivers a significant financial blow, as the auditing giant loses an account that brought in CN¥193 million (US$27 million) in fees last year. This exit is part of a broader client exodus, with major firms like China Life Insurance, China Telecom, and PICC also severing ties with PwC.
The ripple effect has been stark, as at least 50 Chinese firms have either dropped PwC or canceled plans to engage them, driven by rising regulatory concerns. This wave of departures not only dents PwC's revenue but also raises questions about the firm’s long-term stability in the Chinese market.
As PwC grapples with the loss of key clients, the financial impact could be far-reaching, challenging the firm’s ability to maintain its foothold in a critical market.
A view of PwC office in Beijing | Source: VCG
PwC is facing intense regulatory pressure in China, particularly due to its audits of Evergrande, which is under investigation for a US$78 billion fraud. This scrutiny has led Chinese regulators to advise state-owned enterprises to avoid hiring auditors with recent regulatory penalties.
Consequently, PwC has experienced a substantial loss of clients, including its largest mainland China-listed client, Bank of China, which plans to switch to EY. Over 50 Chinese firms have dropped PwC in recent months, with many opting for competitors like EY and KPMG.
About half of PwC's former clients have been snapped up by these rivals, capitalizing on PwC's regulatory challenges. This shift has dramatically affected PwC's standing in China's auditing market.
Sources:
CNBC
Reuters
The Business Times
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