Thomas Reichel¸ PKF Malta¸ 23 May 2012
Limitations for the top accounting firms in China
According to Paul Gillis¸ Professor of Accounting at the Peking University¸ the ‘big four’ accounting firms Deloitte & Touche¸ Tohmatsu¸ Pricewaterhousecoopers¸ Ernst & Young and KPMG will have to effect some changes in her leading positions in China. In the past years¸ an exception allowed non-Chinese CPAs to lead accounting firms in this Asian country. Now¸ after the end of this term¸ they have to restructure into limited partnerships. These firms were lead by locally qualified partners¸ like in several countries all over the world.
The Chinese MOF guidelines contain some strict rules¸ for example only a limit of up to 40% of partners can be foreign with overseas qualifications and 10 years of experience from other countries plus five years in China. By December 2017 this percentage will decrease to 20%.
Another limitation is the age of the partners¸ which now has to be between 40 and 65 years. None of the four accounting firms fulfil this requirement¸ yet. The current senior partners can retain there position for a further three years but then a Chinese national CPA will have to succeed.
In his blog¸ Professor Gillis comments that this period of three years will help to receive the quality of the Chinese audits. Furthermore he expects no layoffs¸ rather the affected will get new positions without the rights they had before.
What is still unclear is what the new senior partners will achieve. Could this be an exercise to reduce the number of foreign executives to strengthen their own influence and financial control? Perhaps this will only instigate more conflicts as in the case of Singapore and in Hong Kong in the 1980s and1990s. In the latter two cases¸ a lot of partners and knowledgeable executives ended up leaving the firms altogether.
Professor Paul Gillis hopes that this won’t happen in China¸ too. The complex economy and the high amount of firms present in China definitely need the experience of expatriate partners.