A view of PricewaterhouseCoopers in Shanghai, China, on March 14, 2023.
CFOTO | Future Issue | Getty Images
PricewaterhouseCoopers is considering cutting up to half its financial services audit staff in China, two people familiar with the matter said, as regulatory probes and an exodus of clients darken its business prospects.
The move follows Chinese regulators’ scrutiny of PwC this year over its role as auditor of the troubled Chinese property giant. Evergrande Groupwhich, in turn, triggered out of some clients.
PwC’s financial services audit operation employs at least 2,000 people in mainland China with main centers in Beijing and Shanghai serving clients such as banks, insurers, and asset and wealth managers, said the source, who requested anonymity.
The firm, with 781 partners and nearly 19,000 employees in mainland China as of last September, according to its website, is also thinking about 20% of its staff in other audit teams and non-audit business lines, he added.
PwC’s China business ranges from consulting to tax services, in addition to audit. The size of the cuts in the financial services audit unit and other business lines was reported for the first time by Reuters.
PwC China layoffs started last week, and the overall target is expected to be met in some time, said the source, who declined to be identified because they are not authorized to speak to the media.
“According to changes in the external environment, we are making a number of adjustments to optimize our organizational structure to align with market demands,” a PwC spokesperson said in an emailed statement.
Chinese authorities have scrutinized PwC’s role in Evergrande’s accounting practices after securities regulators accused the developer in March of a $78 billion fraud over the two years to 2020.
PwC had been Evergrande’s auditor for nearly 14 years until it stepped down in early 2023.
The company faced fines of at least 1 billion yuan ($138 million) and halted operations of some mainland China offices for failing Evergrande’s audit, Bloomberg said in May.
Over the past few months, many clients have left PwC, particularly state-owned or supported companies and financial institutions, following the launch of a regulatory investigation into Evergrande’s audit.
The company had about 400 Chinese clients, listed at home or in overseas markets such as Hong Kong or New York, as of March this year, including tech giants. Alibaba and Tencent.
A Reuters count based on filings shows more than 30 listed Chinese companies including China Life Insurance, China Cinda Asset Management Co Ltd, Bank of China and PetroChina, have dropped PwC as auditors in recent months.
As clients abandon cloud revenue prospects, PwC has stepped up cost reduction measures.
This month, the company asked its 1,000-strong financial services audit team in Shanghai to take about 15 days off in July and August, when staff can still receive a fifth of their earnings, one of the sources said.
PwC’s onshore arm – PricewaterhouseCoopers Zhong Tian LLP, with revenue of 7.92 billion yuan ($1.1 billion) last year, is China’s top auditor, according to official figures.