PwC to pay US$128 million to Evergrande minority shareholders over audit failures
Settlement marks first time auditors of a defunct firm compensate minority shareholders over misleading financial statements
Hong Kong’s Securities and Futures Commission (SFC) has reached an agreement with PricewaterhouseCoopers Hong Kong (PwC HK) to pay HK$1 billion (US$128 million) in compensation to minority shareholders of China Evergrande Group, following what the regulator described as serious breaches of auditors’ professional duties.
Separately, the Accounting and Financial Reporting Council (AFRC) imposed a HK$300 million fine and a six-month practice restriction on PricewaterhouseCoopers, along with HK$10 million in fines on two of its former partners, over the Evergrande audits, the Hong Kong accounting regulator said in a statement.
In a statement on Thursday, the SFC said it had found that Evergrande’s annual reports and results for 2019 and 2020 contained materially false or misleading information. The developer inflated revenue and profits by recognising income from property sales before projects had been completed and delivered to buyers.
Evergrande, now in liquidation, overstated its 2019 audited revenue by 44.79 per cent, or 213.9 billion yuan (US$31.34 billion), and its 2020 revenue by 69.03 per cent, or 350.2 billion yuan.
It reported profits of 33.5 billion yuan in 2019 and 31.4 billion yuan in 2020, but these figures should have been losses of 7.12 billion yuan and 19.9 billion yuan, respectively.
“The SFC also examined the role of PwC HK and concluded that there was market misconduct arising from China Evergrande’s dissemination of false and misleading financial information, alongside serious breaches of auditors’ professional duties,” the regulator said.