China instructs state firms to phase out big four auditors

theguardian.com:

The Chinese government has reportedly instructed state-owned companies to phase out contracts with the big four accounting including KPMG and EY, as authorities try to address security concerns and curb the influence of western-linked auditors.

China’s finance ministry is among the government entities that have issued informal guidance last month, urging state-owned corporations to let contracts with Deloitte, KPMG, EY and PwC expire, according to Bloomberg News.

They have reportedly been told to use local auditors from China and Hong Kong as part of efforts to support the local audit industry and protect the data of state-owned firms, particularly those working in advanced technology.

The new guidance is said not to apply to offshore operations of Chinese firms, including those based in the US, but may force their parent companies to look for homegrown substitutes.

While no deadline has been set for the change, the gradual exclusion from the Chinese market could be a financial blow for the accounting firms, which Beijing says earned a combined 20.6bn Chinese yuan (£2.5bn) from their work for Chinese clients in 2021.

About 60 Hong Kong-listed and Chinese-headquartered firms, in the public and private sectors, have changed their auditors since September 2022, according to Bloomberg. A further 80 companies listed in Shanghai and Shenzen have reportedly changed auditors since December.

A growing number of those contracts have been handed to local auditors including RSM China, Moore Global and Pan-China Certified Public Accountants.

However, Chinese regulators have previously expressed concerns about whether smaller auditors can deliver similar-quality audits and handle more challenging work for listed clients. Some also fear that