China has advised its state-owned firms to gradually eliminate using the services of four international accounting firms, amid concerns about data security. The development comes after Beijing reached a significant deal that will allow US audit inspections of Chinese firms listed in the stock indices of New York. The four accounting firms are Ernst & Young, KPMG, PricewaterhouseCoopers LLP, and Deloitte.
Why does China want to phase out international accounting firms?
First, the Chinese authorities have repeatedly asserted their concerns about data security when it comes to state-owned enterprises dealing with foreign firms for their professional accountancy services. Secondly, China is seeking to encourage its local accounting industry, according to individuals who are cited to be familiar with the matter by Bloomberg.
The US-China powerplay
For years, China has been suggesting its state-owned firms to either avoid or phase out the services of the ‘Big Four’ accounting firms. But after the China-US audit deal last year, which prevented the ouster of 200 Chinese firms off the American exchanges, analysts said that the United States and China could co-exist despite competitive business practices in the areas of technology and commerce.
In December, the US Public Company Accounting Oversight Board (PCAOB) completed its first-ever on-site work paper inspection of some of the largest Chinese companies. The board said that it was able to review audit documents during the trip to Hong Kong, which was hosted by PwC and KPMG.
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The board is planning further reviews this year, whose fate remains unclear after recent Chinese advisories against using the services of ‘Big Four’, whose combined revenue from all Chinese clients in 2021 was $3 billion, according to the finance ministry data cited by Bloomberg.
(With inputs from agencies)
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