PwC fires hundreds of staff in China amid Evergrande fallout

PwC has been forced to fire hundreds of staff in China following a nosedive in accounting revenues from mainland-listed clients, and is anticipating further moves as the fallout from its Evergrande scandal unravels.

According to reporting by FT and Reuters, PwC’s China business has lost about two-thirds of its accounting revenues from mainland-listed clients this year, as a result of its failed audits of property giant Evergrande.

In the past twelve months, around 20 mainland-listed companies have switched from PwC to a rival audit company, including heavyweight accounts state-owned China Life Insurance and China Railway Group.

While Chinese regulations require state-owned enterprises and mainland-listed companies to rotate auditors every eight and ten years, respectively, the majority of the rotations witnessed over the past year were ahead of the required deadline, highlighting the scale of the fallout from the accounting scandal.

PwC audited Evergrande for 14 years until 2023, giving the property developer a clean bill of health, and thus failing to pinpoint the financial mess Evergrande was in. Among others, Evergrande inflated revenues by almost $80 billion over 2019 and 2020. The Big Four firm is expected to be penalized by the Chinese securities regulator.

PwC declined to comment on the losses, yet internal communications received by FT show that executives are preparing for the worst. The firm has already laid off hundreds of staff in offices including Guangzhou, Shenyang, and Shanghai, and instructed some employees to take significant pay cuts or unpaid leave.

China-based partners have been asked to take a pay cut of up to 50%, and urged partners to stay calm and prepare for further upcoming challenges.

Meanwhile, other firms like Lixin (member of BDO), Pan China and Da Hua (member of Moore) are benefiting from PwC’s turmoil, hiring its former employees and poaching its clients.

In China’s auditing market for mainland-listed clients, PwC last year ranked as the number two, behind Lixin. In the next edition, however, PwC may even risk being pushed out of the top 10.