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PricewaterhouseCoopers LLP agreed to pay HK$1.3 billion ($166 million) in fines and compensation to settle investigations into its auditing work for the collapsed property giant China Evergrande Group.

Hong Kong’s Accounting and Financial Reporting Council also on the firm, barring it from accepting or performing audit work for new listed clients. The watchdog also levied a HK$300 million fine.

In a with the Securities and Futures Commission, PwC HK committed to paying HK$1 billion into a fund dedicated to compensating eligible independent minority shareholders of Evergrande.

The SFC said that the agreement resolves the matter “fully and finally” without an admission of liability by PwC. The regulator confirmed it will take no further action against the firm, provided all terms of the agreement are met.

The measures come as the firm attempts to rebuild in the wake of Beijing’s earlier record fine over its audit work on China Evergrande. That triggered an exodus of state‑owned enterprise clients, major Chinese companies and even Hong Kong regulators, along with staff departures.

PwC China, which covers Hong Kong, audited Evergrande, while its mainland partnership, known as PwC Zhong Tian, worked with Hengda Real Estate Group, Evergrande’s mainland unit. PwC was Evergrande’s auditor for more than a decade until it resigned in January 2023, due to what the developer said were audit-related disagreements. While Evergrande is based in China, it’s regulated in Hong Kong because its stock used to trade in the financial hub.

In addition, the a public reprimand to PwC and two of its former partners and registered responsible persons. The audit firm also needs to provide periodic updates and reports to the AFRC regarding its remedial actions for 12 months, as well as arrange training.

“The outcomes reached with the AFRC and SFC conclude regulatory matters related to the Evergrande audits from over five years ago with no impact for our existing clients,” Hemione Hudson, chair and CEO of PwC China, .

The regulatory climate has shifted significantly following the collapse of China Evergrande Group. Its founder, Hui Ka Yan, pleaded guilty to bribery, embezzlement, and fraud in April. In 2024, Beijing accused the developer of inflating revenue by more than 560 billion yuan ($82 billion), in one of the nation’s biggest accounting frauds.

PwC was subsequently fined 441 million yuan and suspended in China for six months. PwC “turned a blind eye” to Evergrande’s fraud, the Chinese securities regulator has said.

PwC disregarded clear evidence of premature revenue recognition, knowingly permitting unsupported consolidation adjustments, and failed to exercise professional skepticism despite multiple red flags and to maintain audit independence, Hong Kong’s .

Audit firms typically pay regulatory fines out of their own reserves because professional indemnity insurance generally doesn’t cover these penalties. Partners can be asked to contribute the rest, based on each firm’s policies. These costs can be higher in Hong Kong since PwC’s partnership there was registered with unlimited liability, whereas China’s was limited.

Meanwhile, a lawsuit by China Evergrande’s liquidators seeking to claw back funds from PwC is set to reach its first public court hearing in May, nearly two years after it was filed.

Photograph: The PricewaterhouseCoopers Center in Shanghai, China, on Wednesday, July 3, 2024; photo credit: Raul Ariano/Bloomberg

Related:

• • PwC Probe Spotlight Shifts to Hong Kong After Record China Fine
  • PwC’s China Unit Suspended for 6 Months, Hit With Record Fine for Evergrande Audit
  • China Evergrande Group’s Liquidators Start Legal Action Against PwC