PricewaterhouseCoopers, the first of the "Big Four", is mired in a crisis of confidence caused by the "failure" of Evergrande's real estate audit, and is being voted by the market with its feet.
On May 30, PetroChina disclosed that it would no longer employ PricewaterhouseCoopers as an annual review agency in 2024. This is not the first in the recent audit crisis, and I believe it will not be the last.
Gone are the days of "making money and earning embarrassed". Whether it is banks and insurance companies with deep pockets, or funds and securities firms with high salaries, as well as capital market intermediaries that earn dividends from the times, they all need to incorporate their own concepts and behaviors into the new normal of "strict supervision and strict management", be compliant, responsible, respect the market and the rule of law, and give full play to professionalism, rather than being a "refined self-interester" of the times.
The wall fell and everyone pushed it
As early as 2022, when Evergrande "collapsed", the market questioned the responsibility of PricewaterhouseCoopers, which had audited Evergrande Real Estate for 14 years. In April this year, an internal open letter on "Who brought PwC into the fire pit of Evergrande" pointed the finger at PwC Asia Pacific and China Chairman Zhao Baiji.
Since then, PwC has "gone out" of the audit circle, public opinion has been in turmoil, and the media has begun to track the large orders it continues to lose.
According to public information statistics, more than 20 listed companies have canceled or plan to cancel their audit cooperation with PwC. In particular, PwC has lost "big orders" from financial institutions or central enterprises, and in addition to PetroChina, there are many "big accounts" such as China Merchants Bank, Chinese People's Insurance and Chinese Life Insurance. Roughly calculated, PwC's loss has exceeded 200 million yuan.
For more details. At present, among the A-share companies that are no longer renewing the employment of PwC, there are many entrepreneurial environmental protection companies hired for 29 consecutive years, Tsingtao Beer for 22 years, Beichen Industrial for 20 years, Qingdao Port, CIMC Group, CIMC Vehicles, etc., as well as China Railway for 7 consecutive years, and its annual application fee reached 37.1 million yuan.
In the insurance industry, Chinese Insurance announced on May 29 that the company intends to appoint Ernst & Young as its 2024 financial report and internal control auditor, taking into account the audit-related needs and relevant regulations on the selection and employment of accounting firms. Chinese has engaged PricewaterhouseCoopers for three consecutive years, with an annual audit fee of 15.97 million yuan.
Prior to this, Chinese Life also launched the 2024 accounting firm selection and recruitment tender, and paid PwC audit fees of 64.18 million yuan in 2023; China Taiping has also proposed to appoint KPMG to replace the retired PricewaterhouseCoopers as the company's auditor, and in May 2023, China Taiping just changed its auditor from KPMG to PricewaterhouseCoopers.
There is a sense of déjà vu that the wall is falling down and everyone is pushing it.
What is more impactful may be the punishment of the regulatory authorities. On May 31, the China Securities Regulatory Commission announced a penalty of 4.175 billion yuan for financial fraud in Evergrande Real Estate. At the same time, the CSRC said that it is advancing the investigation of relevant intermediaries. These include China Securities Construction Investment, the lead underwriter of its problematic five corporate bonds, China Chengxin International, a trustee rating agency, Beijing Jinshe Law Firm, the issuer's lawyer, and PricewaterhouseCoopers, which issued standard unqualified audit reports on Evergrande Real Estate in 2019 and 2020.
There are different opinions about the possible penalty for PwC, but it is widely accepted in the industry that it will significantly exceed the 2023 penalty imposed on Deloitte by the Ministry of Finance, which suspended operations in Beijing for three months and forfeited more than 200 million yuan.
In fact, since the beginning of this year, the supervision of intermediaries, including accounting firms, has been continuously strengthened. Before PwC, Dahua, the head of the "local law firm", was suspended from engaging in securities service business for 6 months because of the financial fraud of the listed company it was responsible for auditing for 6 consecutive years, and the loss of talents and customers was serious, and it collapsed.
From UOB to PricewaterhouseCoopers, from "local firms" to "international firms", all are equal before regulation, which may be the signal that regulation wants to send, and this is not just a signal to accounting firms or intermediaries.
Far and wide
Since Wu Qing assumed the post of chairman of the new China Securities Regulatory Commission, the wind of "two strong and two strict" (strong foundation, strict supervision and strict management) has been fierce, and everyone from securities companies to intermediaries has felt the "storm". Brokers have received more than 100 fines, while accounting firms have recorded nearly 100 penalties in the past two months.
In this regard, Wu Qing has already made it clear, "Don't say anything unpredictable." On the one hand, investors are the foundation of the market, and listed companies are the foundation of the market, so they must treat investors sincerely and kindly, better serve investors, and further strengthen the protection of investors from the legal, institutional, regulatory and judicial aspects; On the other hand, the China Securities Regulatory Commission will keep its eyes open, strengthen early correction of problematic institutions and enterprises, deal with all kinds of risks as soon as possible, crack down on all kinds of violations of laws and regulations, and focus on cracking down on major violations of laws and regulations in key areas. In particular, some illegal acts that touch the bottom line, such as counterfeiting and fraud, market manipulation, insider trading, etc., must be severely cracked down.
The new "National Nine Articles" directly name names, further consolidate the primary responsibility of issuers and the "gatekeeper" responsibilities of intermediaries, and establish a "blacklist" system for intermediaries. By increasing the punishment of non-compliant accounting firms, we hope to achieve the purpose of setting an example and forcing accounting firms to return to their responsibilities.
Behind this is a new era of change in the entire financial regulation. From the establishment of the State Administration of Financial Supervision to the promotion of the China Securities Regulatory Commission, from "horizontal to the edge and vertical to the end" to "long teeth and thorns", it can be called "far-reaching". For the various problems that have arisen in the financial market and the capital market, supervision should be corrected at the same time, and a new risk expectation and regulatory paradigm should be established.
There are examples to follow.
Therefore, the "audit storm" is just a slice of the moment, or even a "storm in a teacup". In the earlier financial markets, from Baoshang Bank to troubled insurance companies, the state and society paid huge costs. The problems exposed by the financial market and the capital market have strengthened the determination of the decision-makers to strengthen financial supervision and eliminate the theory of financial speciality.
Returning to this article, audit is a very special industry, and the objects it serves and pays for are the objects that it wants to supervise, and there have always been objections to it at the medium scale.
Think about it, the audit is unreliable, and it is difficult for anyone to estimate how much water and greasy there will be behind the review. Whether it's an accounting firm or an intermediary, what needs to be done is to change course quickly, not to be uncomfortable and complaining. The macro is what we have to bear, and the micro is what we can do.