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Ping An-backed online lender Lufax has appointed EY to reaudit two years of its accounts after pushing out Big Four rival PwC in the wake of it flagging suspected conflicts in some transactions.
An investigation into transactions previously identified by PwC concluded that profits at Lufax, one of China’s biggest online lending platforms, could have been overstated by as much as 15 per cent, Lufax said in a market statement last week.
Lufax commissioned the independent probe after PwC China raised concerns about possible related-party transactions and questioned the independence of the company’s audit committee, the lender announced in January. PwC China told Lufax not to use its 2024 audit opinions or previous two audits due to the seriousness of the problems, Lufax said.
Lufax fired PwC in the wake of the clash, putting another dent in the Big Four’s business in China, which has suffered in the fallout from its audit of collapsed property developer Evergrande. The accountancy firm was fined $62mn in September and banned from audit work in China for six months.
PwC’s Asia profits fell last year, and its China arm reduced its partner ranks by the highest number in five years.
Lufax said in January that it was concerned as to whether PwC was still authorised by Chinese regulators to continue audit work after the Evergrande scandal, and that the Big Four firm “failed to provide any information” on that point. The ban only prevented PwC from taking on new clients or signing off on certain reports.
PwC declined to comment on Lufax’s claim that it failed to provide any information on the point.
Lufax’s Hong Kong-listed shares were suspended after it fired PwC. They continue to trade in New York, where it listed in 2020.
The company said last week that it had tasked EY with re-auditing its 2022 and 2023 financial statements.
PwC originally raised concerns with Lufax’s audit committee in November. It alleged that a senior Lufax executive had warned them that the company had invested in certain trusts via a subsidiary, and had directed those trusts to purchase assets “to compensate the company’s affiliated entities for losses incurred by those or other affiliated entities in prior transactions with the company”, according to Lufax’s market statement.
Lufax accused PwC of providing “demonstrably and materially wrong” information in its January report, and said the senior executive backtracked on their claims.
However, the subsequent internal investigation found that the company’s financial statements for the years ending December 2022 and 2023 would have to be adjusted “in connection with” the same transactions flagged by PwC. Auditors are required to ask a company’s audit committee about whistleblowing alerts and raise any suspicions about related-party transactions.
The investigation found that Lufax’s balance sheet had overstated its assets and liabilities since the second half of 2023 but simultaneously alleged that PwC’s understanding of the transactions was incorrect.
PwC had questioned the independence of the audit committee and the subsequent investigation when the company said it would not allow PwC to view its findings, Lufax said in January.
If EY’s appointment is confirmed by Lufax’s shareholders, the Big Four firm will also audit the company’s delayed 2024 financial statements, which were due by the end of March.
Chief financial officer Alston Peiqing Zhu resigned over the affair, Lufax said, and would be replaced by former deputy head of retail banking at Ping An Bank, Tongzhuan Xi. A request to Zhu for comment sent via Lufax was not answered.
Lufax said it had appointed former HSBC China chief executive and director of Ping An Insurance Dicky Peter Yip to chair the company’s board, while previous chair Yong Suk Cho would continue half of his former role as chief executive.
PwC China declined to comment. EY China was unavailable to comment.
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