|
Auditors wake up to new era in China. Overnight, China’s Finance Ministry unveiled rules requiring foreign accounting firms to put Chinese citizens in charge of their local operations and to ensure their ranks are dominated by accountants holding Chinese qualifications. The conversions must start in August, but firms have until 2017 to complete the changes.
“The changes come at a difficult time for the Big Four, grappling with the fall-out from a string of accounting scandals at Chinese companies listed in the U.S. that has left investors questioning the quality of auditing in China,” observes Reuters, which has the clearest take on the new rules so far this morning.
But the rules don’t directly address issues of audit quality or oversight, or differences in accounting standards between the U.S. and China. And China appears to have taken a flexible approach with its timing. In most countries only locally registered CPAs can work as accountants, so the new regulations represent a concession by Beijing, even though the accounting giants will struggle to comply.
The joint-venture agreements of all the Big Four firms will start to expire this year, and Beijing could have required the changes be implemented as a condition of their renewal, the FT’s Simon Rabinovitch notes. Instead, “up to 40 per cent of their partners in China will be allowed to continue operating without Chinese qualifications this year, the finance ministry said. That cap will then be reduced to 20 per cent by the end of 2017.” One of the biggest challenges will be finding enough qualified local employees.
The new regulations come just as the SEC ramps up its dispute with Deloitte’s Chinese arm – a move that could impact negotiations between U.S. and Chinese audit regulators over a deal for joint inspections. The SEC has charged the firm with violating the Sarbanes-Oxley Act by refusing to turn over audit work papers, the WSJ reports. Potential penalties could restrict it from auditing Chinese firms with U.S. listings, or even prevent it from auditing the Chinese-units of U.S.-listed companies. “The SEC is really upping the stakes here,” Paul Gillis, a professor at Peking University in Beijing, told CFOJ’s Emily Chasan. Deloitte, which sponsors CFO Journal, said Chinese law prohibits the company from providing documents to U.S. regulators without approval from the government.
Source: CFO Journal
|
