Independent Chinese Partners To Take Over ‘Big Four’ Audit Practices In China

You're a foreign investor thinking of investing in a Chinese company. Even though the company is audited by a Big Four accounting firm operating in China, you are still worried, especially after the rash of recent auditing scandals. Even the Big Four have been mislead into signing audits based on falsified Chinese company records.

If you are worried now, what would you think if these Big Four accounting firms in China were not controlled by their own international partners but instead only by independent Chinese partners? Even more worried? Then brace yourself.

Find out more below.

(By the way, 买者自负 in the title of post is Chinese for caveat emptor. Already a watchwords of foreign investors and businesspeople–the warning is about to take on an even greater significance.)

As Rachel Armstrong reports on Reuters Canada:

The Big Four global audit firms, which dominate the Chinese market, are negotiating with Beijing to lessen the impact of forced changes that could mean only accountants with Chinese qualifications can be partners in their audit practices.

And, as Paul Gillis comments on his excellent China Accounting Blog:

Fast forward to 2012. The exception to Chinese rules that Chinese CPAs must own CPA firms applied only to the existing joint ventures of the Big Four. These joint ventures had a 20-year life, which expires during 2012 for three of the firms. PwC gets an additional five years because it formed a new joint venture at the time of the PW/C&L merger. The firms had hoped that they would be allowed to extend the terms of the JVs, but Chinese authorities have been adamant that the joint ventures must be migrated into limited partnerships that must be owned by Chinese CPAs.

For more than you ever want to know about this issue (unless perhaps you are an accountant in China), read Dr. Gillis comprehensive 2011 dissertation, `The Big Four in China: Hegemony and Counterhegemony in the Development of the Accounting Profession in China.

Ms. Armstrong notes that, `Overseas regulators will be watching events keenly.'