TMTPost -- PricewaterhouseCoopers LLP (PwC) signals it is weighing the option of massive layoff in China as the leading global audit firm suffers an exodus of clients and staff in the country after it was involved in the China Evergrande Group’s financial fraud scandal.

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PwC is considering cutting up to half of its financial services auditing staff and about 20% of the workforce in other auditing teams and non-auditing business lines in China, Reuters reported Wednesday, citing people with knowledge of the matter. According to the sources, PwC China has started the layoff last week and is expected to meet the overall target of job cuts over a period of time.

The sources suggested the latest layoff of PricewaterhouseCoopers Zhongtian LLP, or PwC China, is going to affect more than 1,000 staff of financial services auditing business alone. There are at least 2,000 people working under the operation across mainland China, according to the sources. PwC’s website showed it has 781 partners and almost 19,000 employees in mainland China as of last September. PwC China had 1,693 certified public accountants in 2022 and a total of 23 branches in China, according to the Chinese Institute of Certified Public Accountants (CICPA).

 "Due to changes to the external objective conditions, we have optimized our organizational structure to meet the market demand. We always value talents and have invested heavily in talent training for many years. This adjustment is a difficult decision. We are gradually communicating with our employees and ensuring that the adjustment plan complies with relevant provisions of China's labor law," the PwC public relations team told Chinese digital media outlet The Paper.

The reported layoff was the fallout of the severe financial fraud case of China Evergrande Group (Evergrande). The property developer was fined by China’s top regulator RMB4.175 billion (US575.51 million) for fraudulent bond issuance and information disclosure violations, China Securities Regulatory Commission (CSRC) said in a statement on May 31, 2024. The regulator has been pushing forward the investigation of the relevant intermediary agencies.

Evergrande was alleged to inflate its business revenues and profits in 2019 and 2020 during its issuance of corporate bonds. The CSRC found that Evergrande released false information in its annual reports and failed to disclose the required information.

Evergrande had engaged PwC as its auditor for 14 years from 2009 until January this year, when they ended their partnership. During this period, PwC provided unqualified opinions on Evergrande’s annual reports from 2009 to 2020. Bloomberg reported in May that PwC faces a fine of at least RMB1 billion, which would surpass the previous record fine for an accounting firm, the RMB212 million penalty given to Deloitte in 2023. PwC may also have to suspend some of its mainland offices, as part of penalties, according to the report.

Since the financial fraud scandal emerged, over 14 companies listed in China, including the People’s Insurance Company (Group) of China Ltd., China Merchants Bank, and China Railway Group, have ended their auditing contracts with PwC, involving fees totaling more than 100 million yuan (US$ 13.8 million), TMTPost reporte late May. In May alone, PwC lost a number of Chinese clients, adding to the more than a dozen firms which it has stopped auditing in the country over the past two years. 36 public companies based in mainland China have dropped PwC as their auditors since March, according to stock exchange fillings as of the beginning of this month.

According to data compiled by Bloomberg, PwC was one of the most frequently used accounting firms by Chinese real estate companies listed in Hong Kong. It audited the financials of some of the largest developers in the country, such as Country Garden Holdings and Sunac China Holdings, before these companies defaulted on their debts.