Hong Kong’s Financial Reporting Council (FRC) has begun an inquiry into the accounts and audits of China Evergrande Group [3333:HK] and Evergrande Property Services Group [6666:HK], as reported by Bloomberg on August 15. The FRC has initiated an investigation into Evergrande’s financial statements for 2020 and the first half of 2021, as well as an inquiry into PricewaterhouseCoopers’ audit of its 2020 annual accounts. The auditing regulator noted that it has detected problems with the categorization of restricted bank deposits and other loans, the measurement of pledged securities, and the disclosure of related-party transactions.
Evergrande announced on March 21 this year that RMB13.4bn (USD1.98bn) in deposits of its property services unit that were used to offer pledged deposits for third parties were enforced by relevant banks owing to borrowers’ failure to pay back. In this context, Evergrande’s Board of Directors has formed a special committee to investigate the aforementioned occurrence. On July 22, the two companies reported that the large amount of funding had been utilized as collateral for third-party bank loans and had been delivered to Evergrande. The investigation sparked the FRC investigation. Evergrande has total assets of around RMB2.38tr (USD0.35tr) as of the end of June 2021 and total liabilities of approximately RMB1.97tr (USD0.29tr).