PricewaterhouseCoopers, KPMG, Deloitte and Ernst & Young are likely to strengthen their ties in China as Beijing puts into place a new rule that makes cross-border collaboration mandatory for offshore auditors to carry out work in the mainland, the Hong Kong Economic Journal reported Tuesday, citing Eugene Liu, partner for audit and assurance services at RSM Nelson Wheeler.
The proposed new rule, which comes after a month of consultation, requires offshore auditing firms to work with a mainland partner that either has experience in auditing financial reports of mainland-listed companies or is recognized as one of the top 100 auditing firms.
Liu said the Hong Kong affiliates of the Big Four accountancy and consulting firms, which have a comparative advantage in economy of scale with a combined 70 percent market share, will gain more business from their mainland partners under the new rule and possibly lead to more consolidation in the auditing industry.
The new rule is aimed at preventing sensitive audit raw materials from leaking to offshore markets as auditors enter and work in the mainland under a temporary license, Liu said, adding that the measure could be aimed at the auditors of Chinese firms listed in the United States, rather than the auditors in Hong Kong.
However, the unintended consequences could hit Hong Kong auditors the most, Liu said, citing his firm, which is ranked among the top 10 with about 400 professionals working on over 40 accounts of mainland firms listed in the city, as an example.
Mainland auditors are entitled by the new rule to take the lead in auditing the accounts of mainland firms even if the firms are listed in Hong Kong. Such a practice, nonetheless, will violate requirements in the city where auditors have to sign off the reports in which they are supposed to be in charge. The only way-out is to stop doing business with mainland firms, Liu added.
Mainland authorities on Friday refuted media reports that saw a set of 10 provisional rules that were unveiled earlier as the blockage measure in the auditing industry. Officials said the rules were instead aimed at preventing the industry from becoming a regulatory free zone.
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