Chinese authorities have slapped 441 million yuan ($62.1 million) in penalties and imposed a six-month business suspension on PwC's auditing unit in the country, after the entity was found to have "covered up and even condoned" fraud at Evergrande Real Estate Group.

The China Securities Regulatory Commission said on Friday that PwC Zhong Tian LLP had failed to exercise due diligence in its audit of Evergrande Real Estate Group, the flagship subsidiary of Evergrande Group.

In May, the CSRC had fined the troubled real estate developer some 4.18 billion yuan for fraudulent bond issuances and false statements.

Based on China's Securities Law, the commission confiscated the auditing unit's revenue involved in the Evergrande case of 27.74 million yuan and fined it 297 million yuan — totaling about 325 million yuan, which, according to the commission, was a "record-breaking" punishment against auditing firms.

The Ministry of Finance also said on Friday that, in accordance with the law of certified accountants, it had decided to impose a six-month business suspension on PwC Zhong Tian and fined it 116 million yuan, while closing down its Guangzhou office.

CSRC and the Finance Ministry have examined PwC's role in the Evergrande fraud, in which the developer was found to have engaged in five fraudulent bond issuances based on false statements in the annual reports of 2019 and 2020.

CSRC said PwC Zhong Tian had violated multiple audit standards with inaccurate working papers and ineffective on-site inspections, failed to detect Evergrande's fraud and issued unqualified audit reports.

"PwC's actions were not merely simple audit negligence or failure. To some extent, it covered up and even condoned Evergrande Real Estate's financial fraud and fraudulent bond issuances.

"The actions severely eroded the foundation of law and integrity, significantly harmed the legitimate rights and interests of investors, seriously undermined market confidence and should be severely punished according to the law," said CSRC.

Citing the case, the Finance Ministry said it will continue to enhance supervision and inspection.

"For any discovered cases of accounting and auditing fraud, we will investigate and punish them severely to ensure that regulation has 'teeth and thorns'."

PwC issued a statement on its global website to say that PwC Zhong Tian's work in Evergrande's case fell unacceptably below expected standards. It said it respects the regulators' decisions and that it would fully comply with the administrative penalties.

Dai Guanchun, a senior capital markets lawyer, said the punishments indicate that Chinese regulators are intensifying their crackdown on violations by capital market intermediary institutions according to law.

The case could help deter other institutions from misbehavior as it would result in not only financial losses but reputational damage to PwC's China business, Dai added.