Trainee reporter Wen Yan
PwC's A-share audit business is facing a continuous "retreat" trend.
On the evening of June 28, China Telecom announced that it intends to rehire an external auditor in 2024, which means that PwC's top eight A-share audit clients in 2023 will not renew their employment or adjust the content of cooperation.
According to the reporter's incomplete statistics, PwC has been rehired or adjusted the cooperation content of 31 A-share companies, accounting for nearly one-third of the 107 A-share company customers in 2023; The audit fees of the lost A-share companies exceeded 600 million yuan, accounting for more than 70% of the A-share audit fees of more than 800 million yuan in 2023.
The wave of contract terminations of A-share companies may continue. The relevant person in charge of Shanghai Jahwa told reporters: "Although the company's general meeting of shareholders appointed PricewaterhouseCoopers as the auditor for 2024, it is paying close attention to the progress of relevant events. If they are penalized and unable to practice, the company will make adjustments in accordance with the relevant regulatory provisions. ”
Recently, the regulatory authorities have continued to release signals of strict supervision of intermediaries, and PwC has been deeply involved in the financial fraud of Evergrande Real Estate. On May 31, the official website of the China Securities Regulatory Commission mentioned that "the investigation of relevant intermediaries is being promoted".
An auditor analyzed to reporters that referring to past cases, if PwC is punished, it will affect the capital operation of all customers, resulting in the expansion of the wave of termination of listed companies. What's more, the credibility of PwC's audit business will be greatly reduced after PwC, and credibility is one of the core of the development of the audit industry.
The top eight customers are lost
PwC's lost audit business of China Telecom was previously planned to refer to 2023 for the 2024 audit fee, and China Telecom paid PwC 59 million yuan for the 2023 audit fee.
In terms of audit fee rankings, China Telecom is PwC's third largest A-share customer in 2023. Prior to China Telecom's planned rehiring, the other seven of the top eight customers had already rehired or adjusted their cooperation content.
The loss of audit business from the top eight clients is a major blow to PwC. In 2023, PwC received a total of RMB484 million in audit fees from its top eight clients, accounting for more than half of its A-share corporate client audit fees of more than RMB800 million in 2023.
It can be seen from the exploration that the above eight customers are all large state-controlled listed companies. According to the analysis of audit industry insiders, such companies have a lower tolerance for risks, and it is expected that they will be rehired or adjust the content of cooperation based on the consideration of avoiding potential risks and protecting their reputation, but it does not mean that non-state-controlled listed companies will not be rehired.
"We'll definitely change it then." The chief financial officer of a non-state-controlled listed company said that the company is closely monitoring the progress of PwC's regulatory investigation and will adjust its audit institutions in accordance with regulatory requirements.
Compared with some companies waiting to see the progress of the investigation, China Telecom's reappointment also revealed an important signal: "The appointment of the shareholders' meeting does not mean that a certain audit business of PwC is stable."
Recently, China Telecom and Bank of Ningbo have successively rehired external auditors or auditors for 2024, all after the shareholders' meeting confirmed the appointment of PricewaterhouseCoopers.
"Lost audit clients can be irretrievable for a long time." In the view of industry insiders, based on the consistency of audit business and other requirements, listed companies are more inclined to hire long-term cooperative accounting firms, and there are few frequent changes.
Regulatory investigations raise concerns about practice
Summarizing the reasons for the listed company's non-renewal of PwC's employment, it focuses on "in view of the recent relevant market matters that need to be further verified".
PricewaterhouseCoopers is deeply involved in the financial fraud of Evergrande Real Estate, and the scandal has become public. On May 31, the official website of the China Securities Regulatory Commission issued a decision to punish Evergrande Real Estate Bonds for fraudulent issuance and information disclosure violations, and mentioned that "the investigation of relevant intermediaries is being promoted".
According to public information, PwC has provided audit services for Evergrande Real Estate for 14 consecutive years before its resignation in January 2023, and has issued standard unqualified audit reports.
Recently, the regulatory authorities have continued to release signals of strict supervision of intermediaries. On February 4, the official website of the China Securities Regulatory Commission issued a document stating that it adhered to the principle of "multiple investigations in one case" in response to fraudulent issuance and financial fraud, comprehensively investigated the relevant intermediaries involved in the case, and increased punishment for intermediaries with vile violations and serious circumstances, and urged them to perform their duties as "gatekeepers".
According to the analysis of the audit industry, referring to previous regulatory penalty cases, PwC may face one or more penalties such as large fines, restrictions on practice time, and the closure of some or all accounting firms.
"Once penalized, it will affect the business of the accounting firm." Industry insiders remind that general customers have qualification requirements for accounting firms participating in the bidding, and if they have received major penalties within three years, they may be directly disqualified.
At the same time, some accounting firms have been restricted by the regulatory authorities due to cooperating with the financial fraud of listed companies, which will lead to other customers terminating contracts in order to promote capital operation.
For example, Dahua Certified Public Accountants (Special General Partnership) was punished by regulators in May, including "suspending securities service business for 6 months", and Haiqi Group and other companies that are promoting restructuring immediately "changed firms" for trading needs.
In the view of industry insiders, there are risks inherent in the capital operation of listed companies, and if the appointed audit institution is suspended by the regulatory authorities, it will further exacerbate the relevant risks, and it is reasonable to immediately "change the firm".
Audit credibility has taken a heavy hit
PwC was deeply involved in the financial fraud scandal of Evergrande Real Estate, and more seriously, the credibility of its audit business was severely damaged. Zhu Jiandi, chief partner and chairman of Lixin Certified Public Accountants, said: "For accountants, integrity is the foundation of their business. ”
Previously, China Telecom decided to appoint PwC as the external auditor for 2024, citing that PwC completed the company's 2023 annual audit on time, and its audit services played a role in improving the company's information quality and enhancing risk prevention awareness.
Some practitioners of the Big Four accounting firms said that there is no obvious difference in the audit capabilities of the Big Four accounting firms, but PwC's previous "brand effect" is more prominent, which in turn brings a larger business volume.
According to the "2022 Comprehensive Evaluation of 100 Accounting Firms" released by the Chinese Institute of Certified Public Accountants, PricewaterhouseCoopers ranked first, with a business income of 7.925 billion yuan in 2022, much higher than Ernst & Young, KPMG, and Deloitte, which ranked second to fourth.
Wang Guohai, chief partner of Tianjian Certified Public Accountants, said that brand is an advanced form of market competition, and it is also a concentrated external embodiment of the firm's comprehensive strength such as cultural concept, integrity level, professional ability, practice quality, and reputation of word of mouth.
Today, PwC, which lives on credibility, is caught in the whirlpool of credibility crisis.
A senior executive of a listed company who has been working with PwC for many years said that the accounting firm is a partnership, and the situation of each branch is different, but now the credibility of PwC's audit business has been damaged as a whole, and he is worried that the credibility of the audit report issued by PwC will be questioned.
PwC is a leader in the domestic audit industry, and the credibility of its audit practice is undermining the entire industry. Prior to this, there were a series of fraud incidents in China's securities market such as Yinguangxia and Lantian shares, and Arthur Andersen, one of the "Big Five" accounting firms in the world, suffered a credit crisis, which greatly affected the credibility of the domestic audit industry.
What has attracted the attention of the outside world is that accounting firms are the "gatekeepers" of the capital market, but they have been involved in financial fraud of listed companies many times. On June 19, Wu Qing, Secretary of the Party Committee and Chairman of the China Securities Regulatory Commission, said that in response to the financial fraud of listed companies, the "gatekeeper" responsibility of intermediaries such as investment banks and auditors will be consolidated.
Editor: Captain
Review: Muyu