Evergrande Got a Clean Bill of Health From PWC Months Before Collapse

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

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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

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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

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“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}

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