A fair play

FINANCIAL TITANS: Signs of global leading financial institutions line Beijing's Financial Street (IC)

While the big four grab market shares in China, domestic firms are busy playing catch-up. With localization efforts in full swing, domestic players can step out on to a more even playing field.

"Now, domestic firms and the big four are able to compete under the same legal system and market environment," said Liang Chun, partner of Da Hua Certified Public Accountants.

The big four accounting firms used to be the first choice for Chinese companies planning to raise funds in overseas markets because of their in-house expertise.

In addition, the big four dominate the audit industry with 25 branches in China and took the lion's share of the auditing work for state-owned enterprises when many of them were listed.

Apart from their consultancy businesses, the big four earned more than 9.5 billion yuan ($1.51 billion) in revenue last year from their audit operations.

Although the big four have basked in China's emergence as an economic powerhouse, things began to change as domestic firms enhance their ability to compete with their global peers.

According to the Chinese Institute of Certified Public Accountants (CICPA), the four firms saw their market share slip to 25.7 percent in 2011 from a peak of 33.5 percent in 2008.

According to the table for the top 100 accounting firms in China ranked by CICPA in late June, the revenues of the top 10 domestic firms grew 38 percent year-on-year in 2011. In comparison, revenues for the big four only rose 6 percent in China.

Liang from Da Hua believes that there is a very little gap between local firms and the big four in competency, scale and professional accountants.

"Deeper understanding of the local market and business practices make local firms more competent to compete with the big four," Liang added.

"The only thing that Chinese accounting firms can't compete with the big four is the brand image," said Zhang Lianqi, a senior partner with RSM China, the first domestic accounting firm to achieve annual revenues of more than 1 billion yuan ($157 million).

"The brand name still counts a lot when dealing with overseas floats or in international business operations. But domestic companies are now trying to promote their brands by expanding their business globally."

While pushing global firms to hire more Chinese partners and pursue localization, Chinese regulators also hoped that they could reduce reliance on foreign accountants by nurturing 10 domestic accounting firms.

The country has set its own target: to have 10 large domestic firms and 200 medium-sized ones by 2015.

"A big economy needs a bigger accountancy profession as well as functioning market; that is the lesson we take from the market economies around the world," said Chen Yugui, Vice President of the CICPA.

According to CICPA forecasts, revenues will hit 100 billion yuan ($15.87 billion) by 2017 and the annual average growth rate of the sector between 2011 and 2015 will be more than 15 percent.

In June 2011, MOF issued an announcement saying that foreign-listed Chinese companies and "key enterprises" in pillar industries are urged to give higher preference on selecting domestic accounting firms in consideration of "the security of the nation's financial information."

"It is in accordance with the international norm to cultivate domestic firms under fair competition," said Liang.

On June 8 this year, a statement by CICPA called for domestic accounting firms to "grow bigger and stronger" via mergers, take on larger clients and explore overseas business.

Refunds of membership fees and subsidies of up to 1 million yuan ($158,700) will be offered to those that achieve certain goals, such as reaching an annual income of 1 billion yuan ($158.7 million) or ranking among the top 15 on CICPA's annual table, according to the statement.

"We plan to offer 20 million yuan ($3.17 million) a year in supporting measures," said Chen.

Big Four Milestones

1978: PwC completed its Beijing office, the first of the big four accounting firms to do so.

1981: Arthur Young established a China representative office in Beijing.

1992: The big four won the right to audit in China from the Ministry of Finance and set up their joint-venture firms.

1993: Nine Chinese enterprises were listed in Hong Kong, including Tsingtao Brewery Co. Ltd. and Shanghai Jahwa United Co. Ltd. Big four were responsible for the auditing work of the nine companies.

2002: Arthur Andersen collapsed and its joint venture in China was taken over by PwC Great China.

2009: Top 10 local accounting firms were allowed to serve China-based multinationals.

2009: The Ministry of Finance issued Suggestions on Accelerating the Development of the CPA Industry of China, which sketched out a blueprint for the future of China's accounting sector.

2010: The Ministry of Finance announced a list of 12 mainland CPA firms that are eligible for auditing H-share companies. The 12 accredited firms are the big four's mainland joint ventures and the other eight are local firms.

2012: The Ministry of Finance announced a localization program requesting the big four reduce the dominance of non-local partners.

(Source: Caijing Magazine)