Hong Kong audit watchdog expands probe into Evergrande's unit

FILE PHOTO: The China Evergrande Centre building sign is seen in Hong Kong

HONG KONG (Reuters) -Hong Kong's audit regulator said on Monday it has initiated an enquiry into the financial statements of China Evergrande Group's property services unit and its former auditor after questions were raised following the developer's probe into seized deposits worth $2 billion of the unit.

The Financial Reporting Council (FRC) said in a statement it was investigating the 2020 and first half of 2021 financial statements of Evergrande Property Services, as well as the audit carried out by PwC on its 2020 annual accounts.

"The FRC identified questions about the classification of restricted bank deposits and other loans, the measurement of pledge guarantees given and the disclosure of related party transactions in the accounts, and related questions about the audits," it said.

Evergrande Property Services and PwC did not immediately respond to requests for comment.

Evergrande said on July 22 an internal probe had found that $2 billion of funds held by Evergrande Property Services had been pledged to guarantee financing by the group for debt repayment. In the end, banks seized the money, cleaning out much of the unit's cash.

The audit watchdog first announced in October it was investigating Evergrande's accounts and their audit by PwC because it had concerns about the adequacy of reporting on whether it could continue operating as a going concern.

(Reporting by Clare Jim; Additional reporting by Alun John; Editing by Emelia Sithole-Matarise)