PwC handed out "top penalty" by the Ministry of Finance: To crack down on accounting and auditing fraud.

According to the Ministry of Finance, in September 2024, based on the "Certified Public Accountants Act of the People's Republic of China" and the "Administrative Penalty Law of the People's Republic of China", the Ministry of Finance made an administrative penalty decision against PricewaterhouseCoopers and related certified public accountants. Regarding the accounting firm, in accordance with the relevant provisions of the "Administrative Penalty Law of the People's Republic of China", considering that the China Securities Regulatory Commission imposed an administrative penalty of a confiscation of illegal gains and a fine of 325 million yuan on PricewaterhouseCoopers for illegal acts related to the audit projects of Evergrande Real Estate in 2019 and 2020, the Ministry of Finance imposed an administrative penalty of confiscating illegal gains and a fine of 1.16 billion yuan on PricewaterhouseCoopers for illegal acts related to the audit project of Evergrande Real Estate in 2018. At the same time, the Ministry of Finance, in accordance with the "Certified Public Accountants Act of the People's Republic of China", imposed a warning, suspended business operations for 6 months, and revoked the PricewaterhouseCoopers Guangzhou branch. Regarding the certified public accountants, the Ministry of Finance, in accordance with the "Certified Public Accountants Act of the People's Republic of China", revoked the certification of the four signing certified public accountants Tang Zhenfeng, Wei Ze, Zhu Liwei, and Cai Xiujuan for the audit reports of Evergrande Real Estate from 2018 to 2020; and in accordance with the "Measures for the Practice License and Supervision and Management of Accounting firms" (Ministry of Finance Order No. 97), issued warnings or fines as administrative penalties to Chen Yuntao, Wu Deen, Pan Guowei, Chen Zhijie, Chen Junyu, Lu Yujie, and Jin Ying, who were involved in preparing the consolidated financial statements of Evergrande Real Estate. Furthermore, the Ministry of Finance will actively cooperate with the Hong Kong Financial Reporting Council through cross-border audit supervision mechanisms to investigate and handle any related illegal acts by the accounting firm PricewaterhouseCoopers providing audit services to the EVERGRANDE group. Next, the Ministry of Finance will continue to intensify financial and accounting supervision efforts, crack down on financial fraud and audit fraud, provide strong support for maintaining social fairness and justice, regulating the market economy order, and promoting high-quality economic development. The head of the Ministry of Finance responded to questions from reporters regarding the administrative penalty case of PricewaterhouseCoopers. Recently, the Ministry of Finance made administrative penalty decisions against PricewaterhouseCoopers Zhongtian accounting firm and its Guangzhou branch for their illegal acts in the audit projects of Evergrande Real Estate Group. A spokesperson from the Ministry of Finance answered questions from reporters about the handling of the case. Question: Please introduce the overall situation of the Ministry of Finance's inspection and punishment of PricewaterhouseCoopers. In response to reported irregularities regarding PricewaterhouseCoopers' involvement in financial misconduct at Evergrande Real Estate, the Ministry of Finance organized an inspection team to conduct a special inspection of PricewaterhouseCoopers' audit project at Evergrande Real Estate starting in January 2024. The inspection team from the Ministry of Finance overcame the challenges of Evergrande Real Estate's business volume to...Difficulties such as key personnel leaving, limited administrative inspection methods and so on, are encountered during the inspection of the unit. To overcome these difficulties, the inspection work was solidly completed by reviewing the audit working papers, interviewing relevant personnel, reaching out to related units for extension and analyzing the relevant personnel's emails. The special inspection adheres to the principles of lawfulness, rule compliance, truthfulness, and ensuring that every issue discovered has sufficient evidence. Following the inspection procedures, the Ministry of Finance sought opinions from PricewaterhouseCoopers on the issues discovered during the on-site inspection, and organized experts to review, discuss, and confirm their feedback.Regarding the issues identified in the inspection and trial, the Ministry of Finance initiated administrative penalty proceedings against PricewaterhouseCoopers (PwC) and related certified public accountants, and issued an administrative penalty notice. After reviewing the statements and defenses provided by individual parties, the Ministry of Finance made a final administrative penalty decision in accordance with the law. Question: Please introduce the collaborative work between the Ministry of Finance and the China Securities Regulatory Commission in this case. During the investigation of the PwC Evergrande Real Estate case, the Ministry of Finance strengthened cooperation with the China Securities Regulatory Commission to enhance work efficiency and effectiveness. During the inspection phase, the China Securities Regulatory Commission conducted investigations into fraudulent financial statements in Evergrande Real Estate's 2019 and 2020 annual reports, as well as fraudulent issuance of corporate bonds. The Ministry of Finance utilized the results of the investigation by the China Securities Regulatory Commission to verify the accounting responsibilities of Evergrande Real Estate. Based on this, PwC's auditing responsibilities for 2019 and 2020 were confirmed. Combining information received from various sources, further investigation revealed auditing violations by PwC in 2018, leading to the determination of corresponding auditing responsibilities. During the administrative penalty phase, in accordance with Article 29 of the Administrative Penalty Law, which states that "for the same violation by a party, no more than two fines shall be imposed. If multiple legal norms are violated by the same violation, the higher fine shall apply," the Ministry of Finance and the China Securities Regulatory Commission jointly imposed administrative penalties on PwC. The China Securities Regulatory Commission imposed the maximum penalty of confiscation of illegal gains and a tenfold fine on PwC for violations in 2019 and 2020. The Ministry of Finance imposed the maximum penalty of confiscation of illegal gains and a fivefold fine on PwC for violations in 2018. Additionally, the Ministry of Finance suspended PwC's operations for 6 months and revoked the PwC Guangzhou branch's operating license, while the China Securities Regulatory Commission absorbed PwC's qualification penalty into the Ministry of Finance's penalty. Question: Please provide details on the accountability of auditors for the Evergrande Group. The Evergrande Group is registered overseas and has audit reports issued by PricewaterhouseCoopers in Hong Kong. As PwC Hong Kong is a Hong Kong-based accounting firm, regulatory authority falls under Hong Kong regulators. In accordance with relevant laws and regulations, the Ministry of Finance will actively cooperate with the Hong Kong Institute of Certified Public Accountants through cross-border audit regulatory cooperation mechanisms to investigate and address violations by PwC Hong Kong. Question: Please explain the specific considerations for imposing administrative penalties on PwC and its Guangzhou branch. It was found during the inspection that the audit project for Evergrande Real Estate was signed and audited by PricewaterhouseCoopers, and PwC did not correct the relevant violations in the quality control procedures for the project. Therefore, PwC bears primary responsibility for the audit project. The audit project for Evergrande Real Estate was specifically implemented by the PricewaterhouseCoopers Guangzhou branch, with the signing registered accountants being employees of the Guangzhou branch, making the Guangzhou branch directly responsible for the issues. In terms of administrative penalty discretion, the Ministry of Finance insisted on fair and just penalties in accordance with the law. PwC was given the maximum property penalty for illegal gains in the Evergrande Real Estate audit project, the Guangzhou branch, responsible for direct auditing, was given the maximum qualification penalty of revocation, and PwC, responsible for primary auditing, was given a severe penalty of a 6-month operation suspension. Question: Please explain the specific considerations for imposing administrative penalties on the relevant certified public accountants of PwC. In this case, the Ministry of Finance imposed administrative penalties on 11 certified public accountants. Tang Zhenfeng, Wei Ze, Zhu Li, and Cai Xiuquan signed the financial statement audit reports for Evergrande Real Estate from 2018 to 2020 and were directly responsible. The Ministry of Finance revoked their certified public accountant certificates in accordance with the Certified Public Accountant Law. Chen Yuntao, Wu Deen, Pan Guowei, Chen Zhijie, Chen Junyu, Lu Yujie, and Jin Ying, although not signatories of the Evergrande Real Estate audit report, were involved in the project and had issues in preparing financial reports for Evergrande Real Estate. The Ministry of Finance imposed warnings or fines on them in accordance with the "Measures for the Practice License and Supervision of Certified Public Accountants" (Ministry of Finance Order No. 97). Additionally, for the Communist Party members among the aforementioned certified public accountants, the Ministry of Finance will report their violations to their grassroots party organizations and have them handled according to the "Chinese Communist Party Disciplinary Regulations". Question: Please outline the follow-up work arrangements of the Ministry of Finance. For other issues identified during the inspection, the Ministry of Finance will issue improvement notices to PricewaterhouseCoopers in accordance with relevant laws and regulations. For issues suspected of criminal activities, relevant judicial departments will be notified for investigation and handling. The Ministry of Finance will ensure that PwC strictly implements the relevant administrative penalty measures, carries out improvement work earnestly, and effectively enhances the quality of practice. Furthermore, the Ministry of Finance will fully implement the decisions and arrangements of the Central Committee and the State Council to crack down on financial fraud and auditing fraud, increase supervision and inspections continuously, and rigorously address cases of accounting and auditing fraud to ensure regulatory measures are effective and strengthen financial supervision, enforcing financial discipline, and promoting the healthy and sustainable development of the certified public accountant industry. This article is compiled from "Ministry of Finance" and edited by GMTEight: Li Fo.