(Photo : PricewaterhouseCoopers )

• PricewaterhouseCoopers (PwC) has lost its largest mainland China-listed client, Bank of China, amid a regulatory probe.
• The Bank of China plans to appoint Ernst & Young (EY) as its new auditor, a significant blow to PwC's business in China.
• At least 50 Chinese firms have dropped PwC as their auditor or cancelled plans to hire the firm in recent months.
• The loss of clients and regulatory scrutiny have put PwC in a challenging position, highlighting the risks and challenges that auditing firms face in maintaining their client base and reputation.

In a significant development that has sent ripples through the auditing industry, PricewaterhouseCoopers (PwC), one of the world's leading auditing firms, has lost its largest mainland China -listed client, Bank of China. This comes amid a regulatory investigation into PwC's work on the troubled property developer, China Evergrande Group. The loss of such a major client is a significant blow to PwC's business in China, affecting not only its revenue but also its reputation and market share in the highly competitive auditing industry in the country.

The Bank of China, a state-owned entity, had as recently as March stated plans to reappoint PwC as its auditor for 2024. However, in a filing late on Monday, it announced plans to appoint Ernst & Young (EY) as its new auditor. This decision will be submitted for shareholder approval. The Bank of China paid PwC 193 million yuan ($27 million) in auditing fees last year, more than the combined auditing fees from its three next biggest domestically listed clients for 2023: China Life Insurance, China Telecom, and insurance giant PICC. All three have also dropped PwC as a client, according to filings.

Exodus of Clients and Regulatory Scrutiny

The exodus of clients from PwC is not limited to the Bank of China. At least 50 Chinese firms, many of which are state-owned enterprises or financial institutions, have either dropped PwC as their auditor or cancelled plans to hire the firm in recent months. As of March, PwC was the auditor for about 110 companies listed in mainland China, according to the company's website.

The regulatory probe into PwC's audits of Evergrande, which has been accused by the securities regulator of a $78 billion fraud, is expected to result in heavy fines. PwC audited Evergrande for almost 14 years until early 2023. Since at least April, regulators have asked several large state-owned clients of PwC to drop the auditor. They have also advised that state-owned firms and listed companies should be extremely cautious about hiring auditors that have received regulatory fines or other penalties in the past three years.

PwC's Response and the Impact on the Auditing Industry

The loss of clients and the regulatory scrutiny have put PwC in a challenging position. The firm, once the leading auditing firm in China, now faces a battle to regain its reputation and market share. PwC has not provided a detailed public response to the specific situation regarding the regulatory probe and the loss of clients. However, they have generally maintained a stance of cooperating with authorities and focusing on the quality of their services. In this specific instance, PwC declined to comment directly on the loss of Bank of China as a client, suggesting a strategy of maintaining a low profile while addressing the underlying issues privately.

The loss of Bank of China as a client is a significant development, not just for PwC, but for the auditing industry as a whole. It underscores the increasing scrutiny and regulatory pressure that auditing firms are facing, particularly in markets like China where state-owned enterprises and financial institutions play a dominant role. It also highlights the risks and challenges that auditing firms face in maintaining their client base and reputation in the face of regulatory investigations and potential penalties.

In conclusion, the loss of Bank of China as a client is a significant setback for PwC in China, coming amid a regulatory probe and an exodus of clients. The firm faces a challenging task in regaining its reputation and market share, while also addressing the underlying issues that have led to the current situation. The developments also underscore the competitive dynamics of the auditing industry and the potential for significant shifts in market share in response to regulatory developments and client decisions. The situation serves as a stark reminder of the importance of maintaining high standards of audit quality and regulatory compliance in the increasingly scrutinized and competitive auditing industry.