A senior Chinese official has rejected
criticism over new rules restricting the number of foreign partners
within Chinese audit firms, pointing out the decision is in line
with international practice and will not affect audit quality.

Ministry of Finance accounting department
director Yang Min defended new localisation rules that mean firms
can have no more than 40% foreign partners by August and must have
Chinese nationals in key leadership positions. The rules will have
the largest impact on the foreign controlled Big Four – PwC,
Deloitte, KPMG and Ernst & Young.

“China has properly arranged a transition
program for the Big Four accounting companies and taken into
account the views of Chinese and overseas partners when we came up
with the plan,” Yang said on Chinese radio.

The rules aim to place the control of large
firms into the hands of Chinese and ensure voting rights are
dominated by Chinese-qualified CPAs.

By 2017, firms must have no more than 20% of
partners qualified outside of China. Partners have to be aged
between 40 and 65 years old. Overseas partners have been given a
grace period of five years to pass the exams to become Chinese
Certified Public Accountants.

Chinese Radio International reports
that nearly half of overseas partners in the Big Four do not have
certificates to practice accounting on Mainland China but have
certificates issued by other countries. Most of those partners are
residents of the Hong Kong Special Administrative Region.

“The new localised accounting offices will not
only come under the supervision of the Chinese government and
industrial association but under the guidance of parent companies
of the Big Four,” Yang said.

“Judging from their employees, 90 percent of
the Big Four’s offices in China are locally staffed, among whom
most are graduates from China’s prestigious universities. Thus, we
believe the localised offices will further improve their business
quality and better protect investor interest and the capital market

Yang said that the Big Four were consulted
about the changes when drafting the laws. The Big Four have stated
that they are on track for the transition to local ownership but
some commentators believe they could struggle to meet the

Protectionist rules that require local audit
firm ownership are common across Asia.