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Hong Kong's securities watchdog on Thursday said PwC Hong Kong will set aside HK$1 billion ($127.7 million) to compensate independent minority shareholders of property developer China Evergrande, marking the first settlement of its kind in the city.
The agreement was made after the Securities and Futures Commission's investigation showed PwC Hong Kong had made serious breaches of its professional duties, which led in part to Evergrande's falsified 2019 and 2020 financial statements.
Evergrande, the world's most indebted developer which is in liquidation, overstated its 2019 revenue by 45% and 2020 revenue by 69%, investigations found.
The SFC said it is the first time an auditor of a defunct company will provide compensation to independent minority shareholders who were harmed by false and misleading financial statements, adding that reaching an agreement with PwC Hong Kong serves the best interests of Evergrande’s shareholders.
“This will send an unequivocal message to the audit profession and the investing public that the SFC is committed to maintaining market integrity and protect investors by holding listed companies and their auditors accountable for the accuracy and reliability of financial disclosures,” said Julia Leung, the SFC’s chief executive officer.
Under the agreement, the SFC will take no further action against PwC Hong Kong.
Shortly after the SFC announcement was made on Thursday, the Accounting and Financial Reporting Council (AFRC) also said it imposed a HK$300 million fine and six-month practice limitation on PwC, as well as HK$10 million in fines on its two former registered responsible persons in the Evergrande audits.
In a statement, PwC Hong Kong said resolving the regulatory matters was important and "It is pleased to be able to put them behind us."
"The outcomes reached with the AFRC and SFC conclude regulatory matters related to the Evergrande audits from over five years ago with no impact for our existing clients," said Hemione Hudson, chair and CEO of PwC China.
In 2024, PwC's Chinese unit was penalized by Chinese regulators with a six-month suspension and a record fine of 441 million yuan ($64.52 million) over the firm's audit of Evergrande.
The agreement was made after the Securities and Futures Commission's investigation showed PwC Hong Kong had made serious breaches of its professional duties, which led in part to Evergrande's falsified 2019 and 2020 financial statements.
Evergrande, the world's most indebted developer which is in liquidation, overstated its 2019 revenue by 45% and 2020 revenue by 69%, investigations found.
The SFC said it is the first time an auditor of a defunct company will provide compensation to independent minority shareholders who were harmed by false and misleading financial statements, adding that reaching an agreement with PwC Hong Kong serves the best interests of Evergrande’s shareholders.
“This will send an unequivocal message to the audit profession and the investing public that the SFC is committed to maintaining market integrity and protect investors by holding listed companies and their auditors accountable for the accuracy and reliability of financial disclosures,” said Julia Leung, the SFC’s chief executive officer.
Under the agreement, the SFC will take no further action against PwC Hong Kong.
Shortly after the SFC announcement was made on Thursday, the Accounting and Financial Reporting Council (AFRC) also said it imposed a HK$300 million fine and six-month practice limitation on PwC, as well as HK$10 million in fines on its two former registered responsible persons in the Evergrande audits.
In a statement, PwC Hong Kong said resolving the regulatory matters was important and "It is pleased to be able to put them behind us."
"The outcomes reached with the AFRC and SFC conclude regulatory matters related to the Evergrande audits from over five years ago with no impact for our existing clients," said Hemione Hudson, chair and CEO of PwC China.
In 2024, PwC's Chinese unit was penalized by Chinese regulators with a six-month suspension and a record fine of 441 million yuan ($64.52 million) over the firm's audit of Evergrande.
