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.

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Our union backed Brexit, but that doesn't mean scrapping freedom of movement

We can only improve the lives of our members, like those planning stike action at McDonalds, through solidarity.

The campaign to defend and extend free movement – highlighted by the launch of the Labour Campaign for Free Movement this month – is being seen in some circles as a back door strategy to re-run the EU referendum. If that was truly the case, then I don't think Unions like mine (the BFAWU) would be involved, especially as we campaigned to leave the EU ourselves.

In stark contrast to the rhetoric used by many sections of the Leave campaign, our argument wasn’t driven by fear and paranoia about migrant workers. A good number of the BFAWU’s membership is made up of workers not just from the EU, but from all corners of the world. They make a positive contribution to the industry that we represent. These people make a far larger and important contribution to our society and our communities than the wealthy Brexiteers, who sought to do nothing other than de-humanise them, cheered along by a rabid, right-wing press. 

Those who are calling for end to freedom of movement fail to realise that it’s people, rather than land and borders that makes the world we live in. Division works only in the interest of those that want to hold power, control, influence and wealth. Unfortunately, despite a rich history in terms of where division leads us, a good chunk of the UK population still falls for it. We believe that those who live and work here or in other countries should have their skills recognised and enjoy the same rights as those born in that country, including the democratic right to vote. 

Workers born outside of the UK contribute more than £328 million to the UK economy every day. Our NHS depends on their labour in order to keep it running; the leisure and hospitality industries depend on them in order to function; the food industry (including farming to a degree) is often propped up by their work.

The real architects of our misery and hardship reside in Westminster. It is they who introduced legislation designed to allow bosses to act with impunity and pay poverty wages. The only way we can really improve our lives is not as some would have you believe, by blaming other poor workers from other countries, it is through standing together in solidarity. By organising and combining that we become stronger as our fabulous members are showing through their decision to ballot for strike action in McDonalds.

Our members in McDonalds are both born in the UK and outside the UK, and where the bosses have separated groups of workers by pitting certain nationalities against each other, the workers organised have stood together and fought to win change for all, even organising themed social events to welcome each other in the face of the bosses ‘attempts to create divisions in the workplace.

Our union has held the long term view that we should have a planned economy with an ability to own and control the means of production. Our members saw the EU as a gravy train, working in the interests of wealthy elites and industrial scale tax avoidance. They felt that leaving the EU would give the UK the best opportunity to renationalise our key industries and begin a programme of manufacturing on a scale that would allow us to be self-sufficient and independent while enjoying solid trading relationships with other countries. Obviously, a key component in terms of facilitating this is continued freedom of movement.

Many of our members come from communities that voted to leave the EU. They are a reflection of real life that the movers and shakers in both the Leave and Remain campaigns took for granted. We weren’t surprised by the outcome of the EU referendum; after decades of politicians heaping blame on the EU for everything from the shape of fruit to personal hardship, what else could we possibly expect? However, we cannot allow migrant labour to remain as a political football to give succour to the prejudices of the uninformed. Given the same rights and freedoms as UK citizens, foreign workers have the ability to ensure that the UK actually makes a success of Brexit, one that benefits the many, rather than the few.

Ian Hodon is President of the Bakers and Allied Food Workers Union and founding signatory of the Labour Campaign for Free Movement.