PwC invests in ‘high-quality’ businesses in China after record fine, Reuters internal memo says

By Xie Yu

HONG KONG (Reuters) – PwC is making “tangible investments” to ensure Big Four firms have high-quality and sustainable businesses in China, it said in a note to staff, after Chinese regulators cracked down on the unit on Friday on the continent of the company with a record penalty.

PwC Zhong Tian LLP was hit with a six-month suspension and a 441 million yuan ($62 million) fine on Friday over the firm’s audit of the failed property developer in China. Evergrande (HK:) Group.

Chinese authorities have been examining PwC’s role in Evergrande’s accounting practices since the securities regulator accused the developer in March of a $78 billion fraud over a two-year period to 2020.

“We want to acknowledge that this has been an extremely challenging time for all of you,” said PwC’s internal memo, issued late Friday after the regulatory sanctions announcement and reviewed by Reuters.

“The PwC network has also shown continued support for our firm in China during this period… They are making tangible investments to ensure we have sustainable, high-quality and long-term business in China,” it said communicated.

PwC did not immediately respond to Reuters’ query on Monday.

“I know the coming weeks will not be easy as we implement a detailed remediation plan and begin to position the business for future success,” the company’s new China territory head Hemione Hudson (NYSE: ) said in memory.

PwC has appointed its global risk and regulatory leader Hudson to replace senior China partner Daniel Li as part of its remedial actions. Li resigned given his “former responsibilities” as head of the local audit business.

The firm said its management team will help staff “navigate any questions or concerns” they may have about China’s regulatory announcements.

“One of my areas of focus will be spending time with you and looking for ways to further develop our talent, including investing in you as our people,” Hudson said in the memo.

The note also said that PwC China had a long history of high-quality audits.

“We do not believe that the behavior of a very small number of engagement team members is representative of the work of the vast majority of PwC China’s 18,000 professionals,” it said.

Separately, regulators are continuing their investigation into PwC’s work by its Hong Kong unit in relation to China Evergrande, which is a Hong Kong-listed entity, according to Hong Kong and mainland regulatory filings on Friday.

The penalty announced by mainland regulators “set an important milestone in China Evergrande’s cross-border enforcement,” the Hong Kong Financial Accounting and Reporting Board said in a statement on Friday.

“Our independent investigation into China Evergrande will proceed in an orderly manner,” the statement said.