A significant shakeup in the auditing landscape has seen over 30 major Chinese firms severing ties with PwC as a result of pressures from Beijing.
- The Chinese Ministry of Finance has issued informal instructions to state-owned financial institutions to end their relationships with PwC.
- Prominent clients such as Bank of China and China Life Insurance have ceased their engagements with PwC.
- PwC has suffered substantial financial losses, amounting to hundreds of millions of dollars in lost fees.
- This move aligns with Beijing’s broader strategy to reduce reliance on global accounting firms and promote local auditors.
Over the past few months, the Chinese Ministry of Finance has issued ‘window guidance’ – informal, verbal instructions – to some of the largest state-owned financial institutions, advising them to end their relationships with PwC, according to Reuters reports. Recent corporate filings reveal that prominent clients such as Bank of China, China Life Insurance, PICC, China Taiping Insurance, and China Cinda Asset Management have all parted ways with PwC.
This trend has led to PwC losing over 30 companies listed on China’s stock market in 2023 alone. These departures have resulted in significant financial losses for PwC, amounting to hundreds of millions of dollars in lost fees. For instance, Bank of China paid PwC $28 million last year for auditing services.
In response, PwC China has initiated cost-cutting measures, including reducing headcount and partner pay. The Ministry of Finance, which holds significant shares in many of China’s largest financial institutions and regulates auditors, is believed to be driving these changes. However, PwC partners in China remain uncertain whether these client losses are regulator-driven or independent decisions by the companies.
PwC China, the third-largest network firm within the group with around 20,000 employees, has been under scrutiny for its 14-year tenure as Evergrande’s auditor. Evergrande, once China’s largest property developer, defaulted on over $300 billion in debt in 2021, causing widespread market panic and a series of defaults across the property sector. Chinese regulators declared this year that Evergrande had committed fraud, overstating its sales by tens of billions of dollars between 2019 and 2020, and ordered the company to be liquidated.
In 2022, the Ministry of Finance advised Chinese firms to be ‘extremely cautious’ about hiring auditors with recent fines or penalties. This directive is part of a broader strategy by Beijing to reduce reliance on the Big Four global accounting firms and promote local auditors from China or Hong Kong, aiming to enhance data security and diminish western influence.
The severance of ties between over 30 major Chinese firms and PwC underscores Beijing’s strategic push to lessen dependence on Western auditors and foster local auditing capabilities.
