View all newsletters
Receive our newsletter – data, insights and analysis delivered to you
May 18, 2009

Mid-tier future looks bright as China reaffirms ‘Big 10’ plans

(FREE) The Chinese Ministry of Finance
(MoF) has published key details about its plan to develop 5-10
‘super big’ domestic public accounting firms within the next decade
to challenge the position of the Big Four in China.

The aim of the draft proposal is to create
three different firm sizes: ‘super big’, ‘big’ and ‘small to
medium’, to help bridge the gap between Big Four revenues and the
rest.

According to the MoF, the average audit income
of the Big Four in 2008 was about CNY2.4 billion ($352
million).

The Chinese Institute of Certified Public
Accountants estimated the next largest firm in terms of audit
revenue was BDO firm Shu Lun Pan on CNY666 million. In 2008, the
annual income for the whole public accounting sector was CNY31
billion, with the Big Four consuming a third of the pie.

A domestic backbone

It is planned that ‘super big’ local
firms would each grow to annual fee income of CNY3 billion, and
have strong international reputations, competitiveness and the
ability to offer cross-border services.

They would provide the backbone of the
industry to serve growing foreign investment and be supported by up
to 100 smaller accounting firms.

The MoF estimates there are more than 7,200
accounting firms in China employing more than 85,000 practising
accountants. The growth strategy calls for an expansion to 200,000
licensed accountants and 500,000 firm employees within a
decade.

The proposals send a strong message to global
mid-tier networks that they have a bright future in China.

KPMG Hong Kong audit partner Jack Chow said
his firm was not really encouraged by the proposal although it did
see this as the way forward for China to have greater influence in
the international arena.

“The uprising of the mid-tier firms has always
been a threat to us. It just adds to the agenda that the MoF has
put in a concerted effort to promote certain firms in China, which
changes the landscape,” he said.

Speaking before the announcement, BDO
International chief executive Jeremy Newman said the MoF was
pursuing a policy of developing large Chinese firms in partnership
with established mid-tier networks. This was a departure from the
Ministry’s earlier policy to create 10 domestic Chinese firms that
could establish their own global networks.

Newman, who recently met with MoF officials to
discuss BDO’s plans in China, said authorities were keen for the
global network to help grow a significant Chinese-based, Chinese
managed firm.

“They were concerned to understand the role
that our Chinese firm will have in BDO and to make sure that it
will participate as an equal alongside our American firm and our UK
firm rather than be regarded as a second-tier firm,” Newman
said.

“I hope that within a few years our firm in
China will be one of the largest firms in the BDO network.”

RSM China partner Mark Wilson said there did
not appear to be anything new in the policy as the MoF has stated
in recent years its desire for the profession to develop and be
competitive on an international stage.

“The re-affirmation of existing policy does
suggest that there should be significant opportunities for the
China Top 20 firms to develop strongly in the coming years,” said
Wilson.

The ultimate aim of the proposals is to double
the size of the public accounting industry to CNY60 billion within
the next decade.

BIG 10

Think Big

• Ministry of Finance wants to develop 5-10
‘super big’ Chinese accounting firms in the next decade.

• Each ‘super big’ accounting firm to have
annual audit fee income of
CNY3 billion ($439 million).

• Ultimate aim is to double the size of
the Chinese public accounting profession to combined audit revenue
of CNY60 billion within 5-10 years.

• Expanding number of practising accountants
from 85,000 to 200,000.

Source: Ministry of Finance, China

NEWSLETTER Sign up Tick the boxes of the newsletters you would like to receive. A roundup of the latest news and analysis, sent every Wednesday.
I consent to GlobalData UK Limited collecting my details provided via this form in accordance with the Privacy Policy
SUBSCRIBED

THANK YOU

Thank you for subscribing to International Accounting Bulletin