From Evergrande’s 2009 listing and collapse to record sanctions and the US$8.4bn claim against PwC: the full chronology of one of the biggest audit scandals in Big Four history.
Of course the auditors are to be sued; once material fraud is established the auditors are in breach of their service delivery and that is addressed through the courts.
On a psychological note, it seems as frequently happens, someone decided to burn their (corporate) good reputation for short-term (excessive) gain. Bigger gains lead to more temptation.
Thanks - a very useful timeline. Which still hints at but does not provide a coda to make explicit the predictable way forward:
1. However reduced may be PwC's China-based firm and practice, to preserve the integrity of its global network it cannot fail to retain a significant Chinese presence, to be able to audit the China-based operations of its large clients elsewhere.
2. Because the magnitude of PwC's exposure overwhelms the resources of the local firms, resolution by settlement or judgment will necessarily call upon the global organization to pay "whatever it takes", whether or not the umbrella firm is kept in as a defendant.
3. Discovery and a possible ruling on the umbrella firm's liability - likely to go against PwC - will expose the dissonance between the messaging of all the large firms, that their practices are globally integrated and seamless, while at the same time their local firms are legally separated and fire-walled against each others' liabilities.
4. In the worst case, if among the various reasons the threat to PwC's stability becomes existential, the entire current Big Audit model becomes unsustainable - as nobody argues that a surviving Big Three firms could furnish audits across the population of large global companies.
Further attention at a more focussed and candid level is called for.
Thank you — I think you have identified precisely the issues that make this potentially much bigger than Evergrande.
I would only hesitate over the word “predictable”, because we are still a long way from knowing how the liability question will ultimately be resolved. But I agree that these are the pressure points.
PwC cannot realistically treat China as an isolated market when its multinational clients themselves have substantial Chinese operations. At the same time, the scale of the claim raises the question of where the financial capacity to meet a very large judgment or settlement would actually come from.
And, for me, the most important issue is your third point. The case potentially forces into the open the tension between global integration commercially and legal separation when liability arises. The August judgment does not finally resolve that question, but it means it can now be examined through the substantive litigation.
Your final point is also why this matters systemically. If a major network were ever genuinely destabilised, the problem would no longer be simply PwC’s. It would immediately become a question about whether the concentrated global audit market itself is resilient.
I suspect there is considerably more to write about this.
Thank you - we're aligned - only as to "predictable", it can be said with considerable confidence that the eventual outcome for PwC will be somewhere on the spectrum from "very bad" to "worse" to "worst."
Also, clearly, this story will have long legs - I can say with a full career involved in the profession's significant challenges (my first Big Eight defense was for then Haskins & Sells in a huge Ponzi scheme), also writing extensively on the issues - two books and a long-running blog, Re:Balance - www.jamesrpeterson.com.
With that perspective, your attention and energy are most welcome - the profession has been ill-served by both the business and financial press and by the later-arriving commentators, few of whom bring the experience or perspective needed for useful contributions.
James, thank you — that is a very generous comment. And I’ve just connected the dots properly: I read Count Down and remember your discussion of Andersen’s collapse and what it revealed about the fragility of the global audit model. In fact, that analysis is part of what makes the PwC International aspect of Evergrande so fascinating to me now.
If anyone is well placed to assess the risk of another Andersen-style collapse, it is you.
Excellent timeline.
Of course the auditors are to be sued; once material fraud is established the auditors are in breach of their service delivery and that is addressed through the courts.
On a psychological note, it seems as frequently happens, someone decided to burn their (corporate) good reputation for short-term (excessive) gain. Bigger gains lead to more temptation.
Thanks - a very useful timeline. Which still hints at but does not provide a coda to make explicit the predictable way forward:
1. However reduced may be PwC's China-based firm and practice, to preserve the integrity of its global network it cannot fail to retain a significant Chinese presence, to be able to audit the China-based operations of its large clients elsewhere.
2. Because the magnitude of PwC's exposure overwhelms the resources of the local firms, resolution by settlement or judgment will necessarily call upon the global organization to pay "whatever it takes", whether or not the umbrella firm is kept in as a defendant.
3. Discovery and a possible ruling on the umbrella firm's liability - likely to go against PwC - will expose the dissonance between the messaging of all the large firms, that their practices are globally integrated and seamless, while at the same time their local firms are legally separated and fire-walled against each others' liabilities.
4. In the worst case, if among the various reasons the threat to PwC's stability becomes existential, the entire current Big Audit model becomes unsustainable - as nobody argues that a surviving Big Three firms could furnish audits across the population of large global companies.
Further attention at a more focussed and candid level is called for.
Thank you — I think you have identified precisely the issues that make this potentially much bigger than Evergrande.
I would only hesitate over the word “predictable”, because we are still a long way from knowing how the liability question will ultimately be resolved. But I agree that these are the pressure points.
PwC cannot realistically treat China as an isolated market when its multinational clients themselves have substantial Chinese operations. At the same time, the scale of the claim raises the question of where the financial capacity to meet a very large judgment or settlement would actually come from.
And, for me, the most important issue is your third point. The case potentially forces into the open the tension between global integration commercially and legal separation when liability arises. The August judgment does not finally resolve that question, but it means it can now be examined through the substantive litigation.
Your final point is also why this matters systemically. If a major network were ever genuinely destabilised, the problem would no longer be simply PwC’s. It would immediately become a question about whether the concentrated global audit market itself is resilient.
I suspect there is considerably more to write about this.
Thank you - we're aligned - only as to "predictable", it can be said with considerable confidence that the eventual outcome for PwC will be somewhere on the spectrum from "very bad" to "worse" to "worst."
Also, clearly, this story will have long legs - I can say with a full career involved in the profession's significant challenges (my first Big Eight defense was for then Haskins & Sells in a huge Ponzi scheme), also writing extensively on the issues - two books and a long-running blog, Re:Balance - www.jamesrpeterson.com.
With that perspective, your attention and energy are most welcome - the profession has been ill-served by both the business and financial press and by the later-arriving commentators, few of whom bring the experience or perspective needed for useful contributions.
James, thank you — that is a very generous comment. And I’ve just connected the dots properly: I read Count Down and remember your discussion of Andersen’s collapse and what it revealed about the fragility of the global audit model. In fact, that analysis is part of what makes the PwC International aspect of Evergrande so fascinating to me now.
If anyone is well placed to assess the risk of another Andersen-style collapse, it is you.
Thanks - As this saga continues to unfold, neither of us is going to lack for material.