Chinese checkers

China plans to create several national accounting firms that are
large enough to tackle the Big Four in audit. Arvind
Hickman
speaks to four different mid-tier networks about
their strategies to become a part of China’s Big Ten and what may
stop them from achieving that goal.

The Chinese government has unveiled an ambitious plan to tackle
the Big Four head-on with local indigenous Chinese firms. It wants
to create ten fully-fledged firms in ten years that can provide
comprehensive audit services to reduce reliance on foreign
firms.

The policy, aptly titled ‘bigger, stronger, self-reliant’, was
first outlined in a Chinese Institute of Certified Public
Accountants paper last year. It airs concerns about weaknesses that
presently exist in China’s domestic accounting infrastructure and
aims to wean China’s reliance on foreign audit firms to service the
country’s burgeoning capital markets and Chinese companies that
list on overseas markets.

While this may sound like a challenge for global accountancy groups
trying to establish their slice of the professional services
market, some mid-tier networks and their Chinese representatives
are embracing the plans as an opportunity to grow.

Baker Tilly International tells IAB it plans to support government
policy and that high level meetings between Chinese officials and
its senior partners are already taking place. “Our senior partner
there has had a number of meetings with senior Chinese officials to
talk about that firm’s strategy and how it might fit in with and be
able to assist the Chinese government in a whole range of areas,”
Baker Tilly chief executive Geoff Barnes says.

Horwath International plans to work alongside the Chinese
Government in order to help its representative firm “nationalise”
and “globalise”, according to chief executive Frank Arford. He
says: “All of the firms of any size are trying to make sure they
have presence in key cities and link up by either acquiring other
firms or establishing umbrella agreements so we are trying to work
through changes in China as it continues to evolve.”

Grant Thornton International has warned it is naive to believe that
only international networks will form part of any Big Ten. Grant
Thornton UK partner and head of the China Group Stephen
Weatherseed, who has extensive professional experience in China,
says indigenous firms are capable of developing into global
networks.

“The international accounting profession needs to be cautious about
being arrogant about whether or not the Big Ten automatically means
ten of the big accounting international networks. It has to beggar
the question in my mind as to whether the PRC [People’s Republic of
China] Government has in mind building up domestic PRC firms to be
part of those ten firms,” he says. Interestingly, Weatherseed tells
IAB he was recently quizzed at a seminar of Chinese
accountants about how to set up an international network.

Quality first

Grant Thornton claims it has not been aggressively acquiring
Chinese firms in the interest of maintaining quality. Weatherseed
says the network wants to merge the operations of its various
mainland offices and Hong Kong member firm in order to create a
single China firm. GT reveals that the network is pursuing growth
organically and now also through some mergers, a recent shift in
strategy.

Other groups that spoke to IAB plan to increase in size
and capacity through mergers and acquisitions. Barnes says Baker
Tilly China is talking to a couple of firms at the moment. “I mean
when you get to a critical mass of 1,500 people… you know you are
able to offer technical expertise, critical mass, marketing, IT, to
those firms. It is the same all over the world,” Barnes says. He
notes that China’s ten-year audit rotation laws would present firms
outside the Big Four more opportunities to take on big clients.
However, Barnes believes the profession needs to develop and
embrace international financial reporting and auditing standards if
plans of a Big Ten are to succeed.

Local focus

MSI Legal & Accounting Network Worldwide’s
Chinese representative, Lehmanbrown, plans to become part of
China’s Big Ten. Senior partner Dickson Leung explains: “Our
strategy is to focus more on the Chinese companies who have
potential regarding mergers and acquisitions, initial public
offerings and internal control and advisory. We believe that as
China continues to develop, Chinese firms will both increasingly
demand and be required to have the highest quality accounting and
financial advisory services.”

Horwath’s representative, HW Intertrust China, is also likely to go
down the path of acquisitions. “I don’t see so much our member
firms combining or establishing relationships with competing
network member firms. I see it more as the firms that would be part
of our network trying to, either by acquisition or by setting up
their own offices, make sure they have locations in the key cities
and then go about a plan to nationalise in China as well as
globalise,” said Arford.

The future of China’s accountancy profession is complicated. As
firms jostle for a slice of the action, it is clear the profession
needs international help to develop. The question remains whether
that help will open doors for accountancy networks or slam them
shut.