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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Donald Trump vs Barack Obama: How the inauguration speeches compared

We compared the two presidents on trade, foreign affairs and climate change – so you (really, really) don't have to.

After watching Donald Trump's inaugural address, what better way to get rid of the last few dregs of hope than by comparing what he said with Barack Obama's address from 2009? 

Both thanked the previous President, with Trump calling the Obamas "magnificent", and pledged to reform Washington, but the comparison ended there. 

Here is what each of them said: 

On American jobs

Obama:

The state of our economy calls for action, bold and swift.  And we will act, not only to create new jobs, but to lay a new foundation for growth.  We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together.  We'll restore science to its rightful place, and wield technology's wonders to raise health care's quality and lower its cost.  We will harness the sun and the winds and the soil to fuel our cars and run our factories.  And we will transform our schools and colleges and universities to meet the demands of a new age.

Trump:

For many decades we've enriched foreign industry at the expense of American industry, subsidized the armies of other countries while allowing for the very sad depletion of our military.

One by one, the factories shuttered and left our shores with not even a thought about the millions and millions of American workers that were left behind.

Obama had a plan for growth. Trump just blames the rest of the world...

On global warming

Obama:

With old friends and former foes, we'll work tirelessly to lessen the nuclear threat, and roll back the specter of a warming planet.

Trump:

On the Middle East:

Obama:

To the Muslim world, we seek a new way forward, based on mutual interest and mutual respect. To those leaders around the globe who seek to sow conflict, or blame their society's ills on the West, know that your people will judge you on what you can build, not what you destroy. 

Trump:

We will re-enforce old alliances and form new ones and unite the civilized world against radical Islamic terrorism, which we will eradicate completely from the face of the earth.

On “greatness”

Obama:

In reaffirming the greatness of our nation we understand that greatness is never a given. It must be earned.

Trump:

America will start winning again, winning like never before.

 

On trade

Obama:

This is the journey we continue today.  We remain the most prosperous, powerful nation on Earth.  Our workers are no less productive than when this crisis began.  Our minds are no less inventive, our goods and services no less needed than they were last week, or last month, or last year.  Our capacity remains undiminished.  

Trump:

We must protect our borders from the ravages of other countries making our product, stealing our companies and destroying our jobs.

Protection will lead to great prosperity and strength. I will fight for you with every breath in my body, and I will never ever let you down.

Stephanie Boland is digital assistant at the New Statesman. She tweets at @stephanieboland