PricewaterhouseCoopers earned over forty million dollars in fees auditing China Evergrande and signed off on the accounts presented to them by management for all of those years. PWC is likely to face criticism over the level of push back they gave to management over accounting policies that could have shown warning signs about the company’s financial health many years before the collapse.
China evergrande was founded in 1996 and went public in 2009 on the hong kong stock exchange, raising a billion dollars in the ipo. in 2012 citron research published a report accusing evergrande of using accounting shenanigans to mask their insolvency, pay bribes to build a land bank claimed that evergrande had made
Several where new investments were being used to pay out returns to old investors. the hong kong regulators held a market research – not china evergrande culpable of market misconduct. the tribunal stated that made false and misleading allegations that in 2016, hong kong-based accounting research firm gmt
Research published a report called concerns that evergrande’s financial statements gmt visited 40 evergrande development sites and concluded that 23 billion dollars of asset write downs were needed — which came to around three times shareholders’ equity at the time. gmt claimed that evergrande had allowed
Failed projects such as abandoned hotels to build up on its balance sheet for years without appropriate write downs. they took issue with how evergrande classified the car parking spaces and commercial properties in its residential developments in its accounts. gmt said that evergrande had “persuaded” pwc to
Accept the classification gmt concluded that evergrande’s financial statements were not presenting “a true and fair view” of its financial position and performance. they questioned why evergrande’s auditor – price waterhouse cooper – had allowed this to happen. “are its auditors asleep?” gmt wrote. “the
Company is worth nothing.” – that was five years ago… a year ago, in september 2020 gmt wrote a follow up report highlighting evergrande’s vast unsold assets that generated little or no return and were mostly funded by expensive debt. they argued that which continued to grow, largely financed by
Expensive new debt. all of these reports can be found on the websites of citron research and gmt. it might thus surprise you that in evergrandes most recent annual report, published this spring, pwc did not include a going concern warning, in fact they wrote that they “conclude on the appropriateness of the directors’
Use of the going concern basis of accounting based on the audit evidence obtained. basically, they signed off on evergrandes accounting methods and on the firm’s now as we all know, just a few months later, telling local officials to prepare for its potential downfall. if evergrande was listed on a us or
European exchange, we would be hearing outraged demands from regulators and politicians only in its most recent accounts – for the first half of this year, did evergrande express concerns about the company’s ability to continue the company publicly acknowledged its serious just to be clear this type of problem
Is not just an issue in china. we have seen numerous companies the public company accounting oversight board, companies, said the fact a company goes under before a going-concern warning is issued doesn’t “the auditor is not responsible for predicting future conditions or events,” according to the pcaob
Website. they state that that the absence of a going-concern warning “should not be viewed nonetheless it is surprising that firms like citron and gmt were able to spot these issues many years ago and the auditor who will have received significantly more access than these research pwc earned over forty million dollars
In fees auditing china evergrande since 2009 and signed off on the figures presented to them by management for all of those years. it is difficult to imagine that the auditors will not have known about the negative research reports, which were all over the news at the time. pwc is likely to face criticism over
The level of push back they gave to management over accounting policies that could have shown warning signs about the company’s financial health many years before the collapse. criticism when companies have collapsed, and auditor negligence cases have become more common in recent years. in the uk the financial
Accountancy firms that audited greensill capital and wyelands bank, a bank controlled by sangeev gupta which lent money to his other firms and are three recent financial scandals and one factor that they have in common, is that ey, a british high court ordered ey to pay a large settlement to a former partner in dubai
Last year, an alleged money-laundering scheme by a client. blows to ey’s credibility and integrity, longtime financial shenanigans by its clients in asia, the audit firms have so far avoided this type of public humiliation china’s ministry of finance announced recently company audits by enforcing
“Strict law the decision on whether a going-concern warning is needed is made initially by the company’s management. the auditor then makes a separate assessment and can decide to issue a warning, a going-concern warning doesn’t have to be issued by the auditor unless it is probable that the company
Will be unable to meet its debts as they come due over the next 12 months. even then, a warning can be avoided if the management can show the auditor that they have a plan that will adequately deal with the potential cash crisis. it is hard to look at this situation and think that pwc did not entirely drop the ball. one
Of the problems with situations like this is that the auditor, is supposed to protect investors, but they are incentivized to continue charging their audit fees and get on with company they possibly viewed it as prestigious to audit evergrande – one of the largest firms in china, and might have worried about
Losing other clients if they were seen by the market as being difficult to deal with. let me know your thoughts
Transcribed from video
Evergrande Got a Clean Bill of Health From PWC Months Before Collapse By Patrick BoyleliveBroadcastDetails{isLiveNowfalsestartTimestamp2021-10-13T144512+0000endTimestamp2021-10-13T145553+0000}