Big Four Accounting Firms Ordered To Hire More Locals In China
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China has unveiled new rules that will effectively force the Big Four international accounting firms – Ernst & Young, KPMG, Deloitte and PricewaterhouseCoopers – to appoint a local citizen as the head of their mainland operations within the next five years, or face severe financial penalties.
China has unveiled new rules that will effectively force the Big Four international accounting firms – Ernst & Young, KPMG, Deloitte and PricewaterhouseCoopers – to appoint a local citizen as the head of their mainland operations within the next five years, or face severe financial penalties.
The new regulations, announced on Thursday by China’s Ministry of Finance, are said to be part of a sweeping overhaul of the country’s accounting industry, which have come under fire over the past year after a number of fraud allegations against Chinese companies listed in overseas markets.
Though many have questioned whether the move would further hurt the credibility of Chinese businesses abroad, the Chinese government has insisted that the move to “localize” the accounting industry was necessary in order for the industry to finally attain international standards.
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“What China is really doing here is adopting the global norm,” said Paul Gillis, a professor of accounting at Peking University’s Guanghua School of Management and a former partner at PricewaterhouseCoopers, to The Los Angeles Times.
[quote]”If you look at the Big Four around the world, China is an anomaly where foreigners control their practices. In the rest of the world, the Big Four are a collection of practices owned by local partners.”[/quote]A representative from PricewaterhouseCoopers also told Reuters that it supported the program, as the company had been “localizing its China practice.” Ernst & Young said the new order was “in line with E&Y’s existing strategy.”
At present, only 30 percent of the Big Four partners in China have attained local public accountant certification. This was initially allowed, as there was a lack of qualified Chinese staff.
Under the new rules however, Ernst & Young, KPMG, Deloitte and PricewaterhouseCoopers will have to ensure that 60 percent of their partners in China gained their certified public accountant certification locally. By 2017, only 20 percent of the Big Four partners in China can be foreign-trained. Furthermore, a Chinese citizen must be appointed as the head of the Big Four’s mainland operations.
[quote]“If the changes lead to greater turnover among partners, or a wholesale replacement of leadership by the local partners, there is risk that audit quality would be affected,” Gillis warned.[/quote]“They’re (China) basically asking to accelerate a natural process in a sub-optimal way,” added Tom Selling, publisher of The Accounting Onion, a website on accounting issues.
