Ernst & Young (EY) and KPMG have snapped up over half of PwC’s corporate clients in China that have fled the market’s leading accounting firm as it faces a regulatory probe, filings show.
Chinese authorities have been investigating PwC’s role in auditing China Evergrande Group (3333.HK), opens new tab, after the securities regulator accused the troubled property developer in March of a $78-billion fraud. PwC audited Evergrande for almost 14 years until early 2023.
Regulators have also asked several large state-owned clients of PwC to drop the auditor since at least April.
“Compared to previous years, what we’re seeing this year is certainly an unusual client exodus from PwC,” said Fan Zhongwen, an accounting professor at City University of Hong Kong.
A Reuters calculation based on filings showed more than 40 Chinese firms, many of which are state-owned enterprises or financial institutions, have either dropped PwC as their auditor or canceled plans to hire the firm in recent months.
Among them are some of PwC’s largest clients, including Bank of China (BOC), China Life Insurance and PetroChina, which last year paid accounting fees of nearly 200 million yuan ($28 million), 64 million yuan and 46 million yuan, respectively, the filings showed.
PwC declined to comment for this story. EY and KPMG did not respond to requests for comment.
Last year, domestic regulators reiterated state-owned firms and listed companies should be “extremely cautious” about hiring auditors that have received regulatory fines or other penalties in the past three years.
Those advisories and potentially hefty penalties for PwC have worried some existing clients, prompting them to consider alternatives, said sources.
“PwC’s client losses will likely continue in the short term as its audit of Evergrande has caused great damage to its reputation,” Fan said. “It will take time for PwC to restore the reputation.”
PwC’s main onshore arm PwC Zhong Tian LLP recorded revenues of 7.92 billion yuan in 2022, making it China’s top-earning auditor that year, followed by EY, Deloitte and KPMG, according to official figures.