China’s accounting industry matures with challenges

China’s accounting industry matures with challenges

(Xinhua)    20:51, October 29, 2013

China’s certified public accounting industry has grown to be worth over 50 billion yuansince the sector was re-established in the 1980s. Significant regulatory developments have accompanied its rapid progress. One regulatorystep China has taken ahead of Europe and the United States is mandatory rotation ofauditing irms.
The idea of forcing companies to change bookkeepers gained momentum after the 2008global financial crisis. Taxpayers were furious that some banks were given a clean bill ofhealth but later rescued using public cash.The Europe Union moved closer earlier this month to put mandatory rotation into practice,Reuters reported.
In the U.S., the House of Representatives Financial Services Committee passed a bill inJuly that would block mandatory rotation after the Public Company Accounting OversightBoard (PCAOB), an auditor watchdog, debated the measure.
China’s Ministry of Finance put in place mandatory rotation of auditors in 2010 for largestate-owned financial institutions, among which three of the four biggest Chinese banksselected new auditors last year.
Proponents said the measure could enhance independence by keeping auditors frombecoming too cozy with corporate management.
While not addressing particular cases in China, Kenneth Chatelain, partner in public policyand regulatory affairs for PricewaterhouseCoopers International, said mandatory auditorrotation is generally not the best idea.
“Most countries that adopt or propose to adopt mandatory rotation do so for somecombination of two reasons, either to enhance auditor independence, or to try and spreadwork to develop more accounting firms. And in countries that have it, there is no evidencethat it does either,” Chatelain said.
“Moreover, mandatory audit rotation will likely cause considerable disruption andadditional cost to companies as well as audit firms. Management, audit committees andauditors will need to commit significant time and resources to proposals, diverting theirattention away from the more important activities that drive quality reporting and audits,”Chatelain added.
Contrary to comments that the state-imposed transition might weaken the Big Four’sChina operations, Chatelain said that will not be the case.
“As the Chinese accounting profession becomes more mature, it’s now possible for China tomove towards a model that most countries have had all along, which is mostly localownership of the accounting and auditing firms,” Chatelain said.
For those accounting firms serving Chinese companies listed overseas, there is regulatorylimbo between Chinese and American regulators, as U.S. regulators demand to see thefirms’ auditing papers of U.S.-listed companies, and firms are prohibited from sharing thedocuments under Chinese laws.
The two countries have been trying to find a solution, with the PCAOB signing amemorandum with Chinese regulators in May. But a deal involving the U.S. Securities andExchange Commission, which has standing lawsuits against the Big Four and BDO, has yetto be reached.
Part of the problem is the pressure on the regulators themselves within their respectivegovernments, Chatelain said.
Auditors have lobbied hard for both sides to find a solution, he said, adding that bothgovernments need to work through their differences.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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