By Baron Laudermilk
As part of a major overall in China accounting industry, foreign auditing firms will be required to appoint a Chinese national as their chief partner.
The regulations, which were unveiled last Thursday, are designed to localize mainland operations of foreign auditing firms. They also provide for a lengthy transition period and wiggle room to limit controversy over the changes.
The reputation of Chinese auditing firms has suffered over the past year after various fraud allegations emerged against Chinese companies listed in overseas markets. The reorganization of the China operations of foreign auditing firms, especially that of the ig Four have depended concerns by forcing them to replace all of their foreign partners with Chinese partners.
But the Chinese government has tried to alleviate these fears by giving foreign companies time to adjust. Up to 40 percent of their partners in China will be allowed to continue operating without restructuring, but the cap will be reduced to 20 percent by the end of 2017.
Member Jiachun Wang, a lead risk management expert for Export Import Bank of China told Asia Outbound that this allows plenty of time for foreign accounting firms to get a Chinese national partner ready to take over.
his might seem like an unreasonable thing, but this is actually quite typical. China is behind in this manner. Many nations require their foreign accounting firms to have a national as a partner. This ensures that our
interest are protected and that we can keep risk low, it about managing our risk in the most reasonable way. /p>
The joint venture agreements with the four biggest accounting firms-Deloitte, Ernst & Young, KPMG and PwC, will begin expiring this year and Beijing may impose the new rules as soon as the contracts come up for renewal.
Wang said, After the agreements for the top four foreign firm expires, I am almost positive that Beijing will force them to implement the new rules. The are no different than any other firm. Every accounting firm in China, including the big and powerful ones, must follow these rules. Many developed nations do the same thing. /p>
The restructuring of the forcing accounting firms will be a challenge. Since the auditing industry in China is still in its nascent stage, they have few local employees who are ready to become senior partners.
But some still think that despite the lack of talent in these firms, everything will be fine. Wang said ndeed many of our major accounting firms depend on the expertise from the West. However, Chinese people are coming back from the West, and helping building these firms. It will be hard at the beginning, but I am certain that everything will be fine. /p>
