Listed for less than nine months, ETERNAL BEAUTY (06883.HK) announced on Monday, March 16, that its auditor, PwC, has resigned from its role at the request of the board, effective March 16. The resignation follows PwC's inability to assess the nature, timing, and scope of any additional audit procedures required concerning specific matters, and its inability to set a definitive timeline for completing these procedures. The company also stated it could not accept the additional audit fees PwC indicated would arise from this situation.
Upon the recommendation of the board's audit committee, Mazars has been appointed as the new auditor, effective March 16, to fill the casual vacancy left by PwC's resignation. Mazars will serve until the company's next annual general meeting.
According to PwC's resignation letter dated March 16, the company listed on the Stock Exchange in June 2025. Shortly after the IPO, the company entered into several agreements with three service providers for multi-year public relations services, data analysis and consulting services, and social media promotion services. It had prepaid HK$70 million for these services.
PwC had requested the company's management provide explanations, data, and documents regarding these matters, including: the background of the service providers and their role in the IPO; the company's internal control and approval procedures before engaging these providers; whether the service fee levels and contract terms were comparable to market rates; and whether the payments were considered IPO expenses or accounted for in the board-approved use of IPO proceeds.
PwC acknowledged that the company had engaged an independent professional advisor to investigate the matters, with the investigation supervised by the audit committee. PwC informed the board that the investigation's findings would be crucial for its audit of the group's financial statements for the year ending March 31, significantly impacting the required audit procedures. However, as of the date of the resignation letter, PwC had not received the detailed scope of the investigation or the requested explanations and documents. PwC stated it could therefore not establish a definite timeline for the additional procedures and indicated that handling the matter would incur extra fees. Given the uncertainty and the additional costs, the company decided to change auditors and requested PwC's resignation.
In response to the issues raised, the company has taken actions including the formation of a board-independent investigation committee, comprised of all independent non-executive directors, on January 6. The committee is authorized to appoint Baker McKenzie as legal advisor and Questra Enterprise Consultants Limited as independent forensic accountant. The investigation is ongoing. The company also maintained communication with PwC, providing proposed investigation scopes and engagement letters for review, and facilitating meetings between PwC and the advisors. The company considered the additional fees proposed by PwC.
The board and audit committee are not aware of any other matters concerning PwC's resignation that need to be brought to shareholders' attention. The board confirmed that as of the announcement date, PwC had not commenced any audit work for the fiscal year ending March 31. The board believes the change of auditor will not significantly impact the annual audit or the announcement of annual results.
The company expressed sincere thanks to PwC for its professional services in previous years.
Following the resignation, and based on the audit committee's recommendation, the board resolved to appoint Mazars as the new auditor. The audit committee conducted a comprehensive assessment of Mazars, considering factors such as independence, compliance with professional standards, audit capability, communication quality, and market reputation. The committee was satisfied with Mazars' independence, qualifications, and ability to provide audit services. The board believes the change is in the best interests of the company and its shareholders. Mazars will be responsible for completing the audit for the 2025/2026 fiscal year. The board emphasized that the group's operations remain normal and committed to providing Mazars with all necessary information to complete the audit.