Look east for accounting’s next big thing

The Anglo-dominated accounting industry could soon have a Chinese flavour.

The emergence of Chinese banks is well documented but soon it will be the country’s accounting firms that rise to global prominence.

China’s accounting firms are being forced to localise in a move designed to end foreign control. This will largely affect what is known in the industry as the ‘Big Four’ – PwC, Deloitte, Ernst & Young and KPMG – who are led and largely controlled by expatriates and foreign partners.

The Ministry of Finance (MoF) has just released rules requiring all accounting firms to localise by August. This means they must be led by local citizens and ensure the proportion of foreign partners does not exceed 40 per cent. By 2017, this drops to 20 per cent.

The rules are designed to place control of the largest firms into the hands of Chinese and ensure voting rights are dominated by locally-qualified accountants.

The ‘localisation’ of the Big Four has been widely anticipated and the timeline provided is more generous than many experts predicted.

It’s an important step in the rise of China’s accounting industry because the Big Four are the last great bastion of foreign-managed firms, with market-leader PwC approximately 3.5 times the size of China’s largest domestic firm.

Number Two

This year, China will eclipse the UK as the second largest accounting industry by headcount. In 2007, the UK’s leading 40 firms had 30,000 more accountants than China but in 2011 the difference was only 5,400, according to the International Accounting Bulletin, a publication that analyses accounting markets.

And, China’s workforce has grown by 166 per cent in the past five years compared with 113 per cent in the UK.

The Big Four and Grant Thornton are still bigger in the UK but their Chinese counterparts are catching up quickly. BDO, RSM International, Baker Tilly International, PKF International and Nexia International already have larger Chinese workforces.

Chinese ‘super firms’

The government’s plan for its accounting industry is to produce Chinese ‘super firms’ that can compete head-on with the PwCs and Deloittes of this world. These firms are to become ‘homegrown’ global advisers to Chinese companies expanding abroad.

To do this, the MoF has ‘encouraged’ large Chinese firms to aggressively grow via M&A with like-minded firms, which has led to a flurry of consolidation in the past three years.

The MoF is encouraging Chinese firms to partner with global ‘mid-tier’ accounting networks outside of the Big Four, such as BDO, Grant Thornton and RSM. The aim is that these global networks will help Chinese firms develop audit methodologies and international skills in accounting and auditing. In return, the networks gain a strong Chinese firm for the referral of work in and out of one of the most important economies.

This has led to China becoming one of the least concentrated accounting markets. If you take the largest 40 firms in China, the Big Four earn 59 per cent of market revenue. In the US, the Big Four earns 81 per cent and globally their share is 70 per cent.

It is conceivable that the next 10-20 years, the global accounting industry could revert back to a Big Five or Big Six, with a couple of Chinese-backed players.

The traditionally Anglo-dominated accounting industry could soon have a Chinese flavour.

Arvind Hickman is the  editor of the International Accounting Bulletin.

Photograph: Getty Images

Arvind Hickman is the editor of the International Accounting Bulletin.

Photo: Getty
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Tail docking is described as “barbaric” – so why did the SNP vote to bring it back?

The decision by the SNP to permit the docking of puppies' tails seems bizarre - until you consider the party's divided loyalties.

As Holyrood votes go, it probably doesn't get more emotive than the decision to lift the ban on tail docking - a procedure carried out on three-day-old puppies which involves crushing cartilage, nerves and bone without anaesthetic, and which campaigners have called "barbaric".

The reasoning is that these "working" dogs, flushing out animals to be shot on Scotland's vast hunting estates, can injure their long tails. The British Veterinary Association disagrees, saying the procedure inflicts significant pain and deprives dogs of a "vital form of canine expression". 

So why has the Scottish National Party, with its left-wing rhethoric and substantial block of left-leaning newer members, voted through such a deeply controversial proposal?

One clue is to be found in 2014-15 - not the independence referendum, but the push for land reform which followed it. The extraordinary concentration of land ownership in Scotland - around 430 families or companies own half of the private land - became a touchstone issue for independence campaigners. After September 2014, many transferred their enthusiasm to this issue, demanding a new bill that would kickstart land reform after a decade in the long grass.

This presented a real problem for the SNP. In its longheld tactic of appealing to both left and right, rich and poor, the land issue showed up the cracks. While the new First Minister made rash promises of "radical" reform in November 2015, her cabinet nevertheless included Fergus Ewing, a centre-right politician with links to the landed estates and rural lobby. 
 
Pictures of Ewing clad in tweed alongside gamekeepers at a PR stunt caused some of the party's new membership a twinge of unease. Unedifying rows over fracking, which highlighted Ewing's relationship with the Duke of Buccleuch, did not help. While much was made of the SNP's 56 MPs opposing fox hunting at Westminster, Ewing opposed a Scottish ban more than a decade before
  
Before the SNP made its unprecedented break into the Labour strongholds of the west of Scotland and central belt, the party's support was concentrated in the largely rural east. Perthshire, Banff and Buchan, Moray are places where people voted Tory in the past - and indeed, turned blue once more this June. Not that such a swing can be said to have come entirely from SNP voters. Nevertheless, it does highlights another side of SNP membership that is often forgotten about. "It's said that there are two SNPs," said Professor Ailsa Henderson, professor of political science at the University of Edinburgh. "An SNP voter in Govan is perceived to have a very different profile than another in Perthshire". 
 
This project to appeal to all Scotland - particularly noticeable during Alex Salmond's leadership - produces strange paradoxes, and this tail docking issue is just the latest. The rural lobby is strong, from gamekeepers' associations to hunting proponents to the powerful Countryside Alliance. The current government's proposal to reintroduce the practice didn't come out of the blue. As Green MSP Mark Ruskell explains, the lobbying began with the SNP's victory at Holyrood in 2007. The previous Labour-led "rainbow" parliament, with its seven green MSPs and six socialists, had introduced the Animal Welfare (Scotland) Act, banning the practice of docking as well as fox hunting. 
 
"The gamekeepers were furious," Ruskell said, "And the first thing they did was to lobby the new Scottish government". Ten years later, their wish was granted. "The evidence was rejected by professional bodies, but they still went ahead. It's been spectacularly misjudged," added Ruskell. The power of lobby groups at Holyrood has repeatedly been raised as a concern by campaigners and parliamentarians alike, with last year's Lobbying Act cricitised as being far too weak to ensure real transparency. Pressure from gamekeepers and shooting groups, Ruskell said, influenced the whole way the evidence was put together. One report was simply a survey of self-selecting shooting estates, describing the frequency of tail injuries. 
 
For its part the Scottish government defended the move by pointing out that the rules will still be more restrictive than in other parts of the UK. Only a vet can make the decision to shorten tails - "no more than the end third" - and it will apply only to spaniels and hunt point retrievers. "We have seen enough evidence that some working dogs are suffering tail injuries to make the case for the law being changed", said a government spokesperson. "Scotland is a nation of animal lovers and we take the welfare of our pets, animals and livestock very seriously." 
 
Reaction from SNP members online has been fairly damning, with some talking of leaving the party - though others have defended the decision. The next big showdowns in Holyrood on animal welfare are likely to be just as emotive: the use of electric shock collars on dogs, and the prosecution of wildlife crime (or, how to deal with the fact that poisoned, bludgeoned birds of prey keep turning up on grouse shooting estates). The latter in particular will test, once again, the direction of a party split between appeasing a land management lobby, and meeting the high expectations of its newer members. 
 

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