China Evergrande rejects claims it was never profitable in report centred on changes to its accounting method

China Evergrande Group stood by audited annual reports from 2021, rejecting claims by financial analysts that changes to its accounting methodology suggested the debt-laden property developer was “never profitable” in its years of operations.

“The company’s financial statements for the previous years were audited by PricewaterhouseCoopers and received standard unqualified opinions,” executive director Shawn Siu said in a stock exchange filing on Tuesday. “In PricewaterhouseCoopers’ resignation letter, the revenue recognition in previous years was not questioned.”

The developer belatedly published its 2021 and 2022 annual accounts in August last year. PwC, as the auditor is known, resigned on January 16 last year, and Evergrande appointed Prism Hong Kong and Shanghai to fill the temporary vacancy.

Evergrande, whose US$20 billion offshore debt reorganisation collapsed last month, changed the revenue-recognition methodology for 2021 to be consistent with the standards under current circumstances, according to the latest filing. The decision was made in light of its liquidity crisis and the substantial loss of staff, it added.


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The Guangdong-based developer did not identify the firm or the analysts making the allegations about its profit history.

GMT Research, a Hong Kong-based accounting research firm founded by former CLSA and Nomura analyst Gillem Tulloch, published a report on December 1 focusing on the changes to the developer’s accounting treatments. The firm was among the earliest to raise red flags on the developer more than five years ago, citing many unfinished housing projects.

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“Evergrande significantly overstated revenue and earnings, most likely for many years,” the report said. “Contrary to what some people think, Evergrande was not so much a victim of tightened liquidity or a Covid-induced property market downturn. Its problems were far more fundamental – there were never any profits.”


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Under its new auditor, Evergrande changed the description of its past practice: it seems revenue had been recognised earlier on the acceptance of the property by the customer, or according to the sales contract, GMT said, which appears to be much more aggressive. Significantly, there was no reference to the property being delivered or completed; deemed acceptance was sufficient, it added.

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“While we stand by our original report, we do not plan to comment on Evergrande’s recent clarification,” GMT said in an email to the Post.

Evergrande said the data and conclusions lacked direct relevance and did not provide substantive evidence to prove that the company has never been profitable, without identifying the report.

The developer, once China’s biggest home builder by sales, incurred a net loss of 476 billion yuan (US$66.3 billion) for 2021 and 105.9 billion yuan for 2022, according to its stock exchange filings in July. It defaulted on a dollar-denominated bond in December 2022, triggering a wave of cross defaults.

A court in Hong Kong last month adjourned a hearing to January 29 after a creditor filed a petition to liquidate the Chinese developer. The case has been adjourned several times since June 2022 to give Evergrande time to reorganise its debt burden.

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