PwC loses largest client Bank of China amid regulatory probe

PricewaterhouseCoopers or PwC, once the dominant auditing firm in China, has lost its largest mainland China-listed client, Bank of China (BOC), to its rival Ernst & Young (EY).

This shift comes amid growing regulatory scrutiny over PwC’s audits, particularly those related to the troubled property developer China Evergrande Group.

The exodus of PwC’s clients highlights the mounting challenges the firm faces in China, where state-owned enterprises (SOEs) and financial institutions are increasingly opting for domestic or other international auditors.

Bank of China switches to EY as PwC faces scrutiny

The state-owned Bank of China, which had previously planned to reappoint PwC as its auditor for 2024, announced in a filing late on Monday that it intends to appoint EY instead.

This decision will be put forward for shareholder approval. The move marks a significant blow to PwC, as BOC was its largest client in mainland China, paying 193 million yuan ($27 million) in auditing fees last year.

This fee surpasses the combined auditing fees from PwC's next three largest domestically listed clients for 2023: China Life Insurance, China Telecom, and insurance giant PICC, all of which have also dropped PwC as their auditor.

Regulatory investigation into Evergrande's audits

The shift by Bank of China and other major Chinese firms comes in the wake of an ongoing regulatory investigation into PwC's audits of China Evergrande Group, a property developer accused of a $78 billion fraud by the Chinese securities regulator.

PwC audited Evergrande for nearly 14 years until early 2023, and the investigation is expected to result in heavy fines for the auditing firm.

Since at least April, Chinese regulators have reportedly advised several large state-owned clients of PwC to drop the auditor, further intensifying the firm's challenges in the region.

Client exodus and impact on PwC’s operations

At least 50 Chinese firms, many of which are state-owned enterprises or financial institutions, have either dropped PwC as their auditor or canceled plans to hire the firm in recent months, a Reuters examination of filings shows.

As of March, PwC was the auditor for approximately 110 companies listed in mainland China, according to the firm's website.

The recent exodus has significantly impacted PwC's operations in the country, leading to staff cuts across its offices in Beijing, Shanghai, and other locations.

At least 100 staffers have been let go as PwC adjusts its organizational structure to align with the changing market demand, Bloomberg reported last month.

EY and KPMG gain ground as PwC loses clients

The fallout from the regulatory scrutiny has not only affected PwC but has also led to increased opportunities for other Big Four firms like EY and KPMG.

About half of the corporate clients that have dropped PwC have been snapped up by these competitors, Reuters reported.

Notably, EY previously audited Bank of China for eight years before PwC took over in 2021. Chinese regulations stipulate that state-owned firms should not employ the same auditor for more than eight consecutive years, which may have also influenced BOC's decision to return to EY.