Chinese regulators are poised to impose a six-month business suspension on a significant portion of PricewaterhouseCoopers' (PwC) auditing unit in mainland China.

The ban is part of punitive measures related to PwC's work on troubled property developer Evergrande.

The suspension is expected to target PwC Zhong Tian LLP, the firm's main onshore arm and registered accounting entity in China. The ban will likely focus on securities-related business, affecting PwC's work for listed firms, companies preparing for initial public offerings, and investment funds on the mainland.

In addition to the business suspension, PwC is expected to face a fine of at least 400 million yuan (£44.5 million). If implemented, these combined penalties would represent the harshest punishment ever received by a Big Four accounting firm in China.

The sanctions, primarily handled by China's Ministry of Finance, are anticipated to be announced in the coming weeks. They stem from PwC's role in auditing China Evergrande Group, which was accused of a $78 billion fraud in March. PwC had audited Evergrande for nearly 14 years until early 2023.

The impending penalties have already triggered an exodus of clients and prompted cost-cutting measures and layoffs at PwC in recent months, casting a shadow over the firm's future in the world's second-largest economy.

During the suspension period, PwC would be barred from signing off on critical documents for mainland China clients, such as financial results and IPO applications. The firm would also be prohibited from carrying out other securities-related services.

The business suspension could have longer-term implications for PwC Zhong Tian, potentially preventing it from taking on new state-owned or listed clients for the next three years, in accordance with Chinese regulations.

This action follows a similar, albeit less severe, penalty imposed on Deloitte's Beijing branch in March 2022. Deloitte was fined 211.9 million yuan, and its operations were suspended for three months after authorities uncovered serious deficiencies in its audit of China Huarong Asset Management.

The PwC case highlights the increasing scrutiny of auditing firms by Chinese regulators, particularly in relation to high-profile financial scandals. It also underscores the challenges faced by international accounting firms operating in China's complex regulatory environment.

A PwC spokesperson stated, "Given this is an ongoing regulatory matter, it would not be appropriate to comment."

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