Evergrande, the Chinese real estate developer has financial problems because it has not paid due interest on its international bonds on time.
This company is one the world’s biggest companies and its financial reporting is subject to scrutiny by the stock exchanges and by their auditors who in this case are PwC, one of the four largest accountants in the world.
Last year’s financial accounts (over 200 pages) were signed off by PwC, and in their 8 page report they state, among other matters that:
“Based on the work performed, we considered that management’s estimates on the net realisable value of the Group’s PUD and PHS were supported by the available evidence.”
“Based on the work performed, we considered that the key assumptions used in the valuations were supported by the available evidence.”
“Based on the work performed, we considered that the key assumptions adopted by management in the impairment assessment on goodwill and intangible assets were supportable by the evidence obtained.”
The accountants conclusion is to give the company a clean bill of health just 9 months before EverGrande’s payment defaults and some 4 years after warnings regarding empty or abandoned buildings and building sites owned by Evergrande were listed in publicly available documents.
One could argue that PwC is an unwitting victim that was mislead by the management of Evergrande when signed off on the 2020 accounts, but that is rather rich coming from such a firm that has huge forensic office that publishes each year the well-known “PwC’s Global Economic Crime and Fraud Survey” – the last one was published 2020.
Readers can make their own conclusions about the story that involves the world’s biggest and greatest banks, fund managers and accountants… they all seem to have got it wrong! What does that say about their financial management skills?