The Hong Kong Accounting and Financial Reporting Council (AFRC) announced on Thursday that it has imposed a HK$300 million ($38.3 million) fine and six-month practice limitation on PricewaterhouseCoopers (PwC) and HK$10 million in fines on its two former registered responsible persons over the Evergrande Audits.

In a statement, the AFRC said that it has sanctioned PwC and two of its former partners and registered responsible persons, Cheung Siu Cheong and Chow Sai Keung, for misconduct in connection with PwC's audits of the consolidated financial statements of China Evergrande Group, Evergrande Property Services Group, and China Evergrande New Energy Vehicle Group, for the year ended 31 December 2020.

Following investigations and relevant enquiries, the AFRC found that there were numerous serious audit deficiencies by the auditor in the Evergrande Audits, according to the press release.

The AFRC identified multiple audit deficiencies across each of the Evergrande Audits. Among these, the audit deficiencies in the Evergrande Group Audits were particularly egregious, including facilitating and contributing to management's inflation of the Group's reported profits and liquidity, and failing to exercise professional scepticism despite multiple red flags indicating elevated risks of material misstatements.

The firm also failed to maintain audit independence and comply with professional standards when performing audit work. Furthermore, there was a failure to properly monitor and evaluate the system of quality control of the relevant office of PwC's network firm, said the AFRC announcement.

Hong Kong's Securities and Futures Commission (SFC) also announced on Thursday that it has reached an agreement with PwC Hong Kong (PwC HK) under which PwC HK has agreed to set aside HK$1 billion to compensate eligible independent minority shareholders of China Evergrande Group.

The SFC has determined that China Evergrande's annual reports and results announcements for FY2019 and FY2020 contained materially false or misleading information, particularly regarding revenue recognition. China Evergrande manipulated its annual revenue and profits by prematurely recognizing revenue from property sales before the completion and delivery of properties to buyers, with the intent to substantially overstate its audited annual revenue and profits, said the SFC.

The SFC concluded that China Evergrande's audited annual revenue was overstated by 213.9 billion yuan ($31.3 billion) or by 44.79 percent for FY2019 and 350.2 billion yuan or by 69.03 percent for FY2020.

The HK$1 billion has been set aside for allocation to compensate these independent minority shareholders through a process overseen by an independent administrator. The detailed provisions of the compensation process will be published in due course, said the SFC.

Previously, in September 2024, the China Securities Regulatory Commission announced an administrative penalty on PwC for failing to live up to its obligations in auditing annual reports and bond issuance of Evergrande Real Estate Group, Xinhua News Agency reported.

The commission announced the confiscation of PwC's revenue of 27.74 million yuan related to the Evergrande audit case and a fine of 297 million yuan, bringing the total to 325 million yuan, said the report.

Former Evergrande Group chairman Xu Jiayin pleaded guilty to charges including illegal deposit absorption, fraudulent fundraising, and illegal loan granting during a two-day trial at the Shenzhen Intermediate People's Court, the Xinhua News Agency reported on April 14.

Prosecutors also accused Evergrande and its real estate arm of fraudulent securities issuance. The verdict will be announced at a later date, per Xinhua.