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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Jeremy Corbyn fares well in his toughest interview yet

Labour will be relieved that Corbyn's encounter with Andrew Neil was less painful than Theresa May's. 

Jeremy Corbyn's half-hour BBC1 interview with Andrew Neil was the toughest grilling he has faced since becoming Labour leader. Neil sought to cause Corbyn maximum discomfort by confronting him with his past views on the IRA, NATO and Trident (which he never anticipated having to defend from his current position). 

"I didn't support the IRA, I don't support the IRA," Corbyn said in response to the first. After Neil countered that Corbyn "invited convicted IRA terrorists to tea in the Commons a few weeks after the Brighton bomb," the Labour leader replied: "I never met the IRA. I obviously did meet people from Sinn Fein" (a distinction without a difference, some will say). But after the 1998 Good Friday Agreement, Corbyn is aided by the reduced toxicity of the subject (New Labour dealt with terrorists) and the fact that for some voters, the young most of all, "the troubles" are a distant memory.

NATO, Neil recalled, had been described by Corbyn as "'a very dangerous Frankenstein of an organisation', 'a danger to world peace'. Two years ago you said it should be 'wound up'." It is to Corbyn's credit, in some respects, that he struggles to disguise his sincere views, and he did on this occasion. "NATO exists," he observed at one point, eventually conceding after much prodding: "I will be a committed member of that alliance in order to promote peace, justice, human rights and democracy". But nearly 30 years after the end of the Cold War, the subject will seem esoteric to many voters.

Trident, however, is another matter. "My views on nuclear weapons are well-known," Corbyn correctly noted, making it clear that the Labour manifesto committed to full renewal against his wishes. "I voted against the renewal," he said. "Everybody knows that because I wanted to go in a different direction." That the opposition is divided on such a profound issue - and that Corbyn's stance is at odd with the electorate's - is undoubtedly a drag on Labour's support.

But under forensic examination, Corbyn emerged stronger than many predicted. There were few moments of intemperance and no disastrous gaffes. Corbyn successfully dodged a question on whether Labour would cut immigration by replying that the numbers would "obviously reduce" if more workers were trained. Indeed, compared with Theresa May's painful encounter with Neil last Monday, Corbyn's team will be relieved by his performance. Though the Labour leader cannot escape his past, he avoided being trapped by it tonight. 

George Eaton is political editor of the New Statesman.

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