EY and KPMG Gain as PwC Faces Regulatory Scrutiny in China

Ernst & Young (EY) and KPMG are emerging as the primary beneficiaries amid the ongoing regulatory challenges faced by PricewaterhouseCoopers (PwC) in China. The scrutiny began when Chinese authorities launched an investigation into PwC's long-standing audit relationship with China Evergrande Group, a major property developer embroiled in allegations of significant financial fraud. This probe has led to a broad client exodus from PwC, with more than 40 firms, including several large state-owned enterprises and financial institutions, severing ties with the auditor.

EY and KPMG have swiftly capitalised on this situation, securing audit contracts with at least 24 of these companies. The clientele includes high-profile companies like Bank of China and China Life Insurance, which represent substantial audit fees previously directed towards PwC.

The influx of new business has allowed EY to implement strategic financial incentives such as offering a 10% to 20% reduction in audit fees to former PwC clients, which enhances its competitive edge in the market. Moreover, EY is hiring more workforce in anticipation of the increased demand, planning a 10% salary increase for new hires through campus recruitment this fall. KPMG, similarly benefiting from the situation, has absorbed significant audit fees that further strengthen its position in the Chinese market.

This realignment in the audit sector highlights the broader implications of regulatory actions on the competitive dynamics among the Big Four accounting firms in China. The incident also serves as a cautionary tale for audit firms about the potential repercussions of regulatory scrutiny and the importance of maintaining stringent audit standards to uphold their market positions.