The Big Four Accounting Firms in China: A Closer Look
Chinese regulators have slapped PwC with a record fine and suspension, highlighting the Big Four's significant role in auditing major Chinese companies.
Big Four Accounting FirmsChinaPwcEyDeloitteKpmgAuditingAccountingReal Estate NewsSep 14, 2024
The business suspension and fines are the toughest ever penalty received by a Big Four accounting firm in China. The regulators' action puts the spotlight on the Big Four's activities in the country and on how big a role they play in auditing major Chinese companies.
Chinese authorities have been examining PwC's role in the accounting of Hengda Real Estate, the name of Evergrande's mainland unit, since the China Securities Regulatory Commission accused the developer in March of a $78 billion fraud over a period of two years through 2020.
The Big Four auditing firms in China are PwC, EY, Deloitte, and KPMG. They were the top four auditors, ranked by revenue in China in 2022, based on a report by the Chinese Institute of Certified Public Accountants, an industry association.
The four firms audit 18 of China's 20 biggest state-owned companies by assets, or 95.1% of the total assets as of 2023, research published in July showed. The research was led by professor Chen Hanwen from University of International Business and Economics and professor Han Hongling from Zhejiang University.
Their research also found the Big Four audited the majority of China's biggest banks, insurers and brokerages in 2023, with their audited assets making up 63.2% of the total 461 trillion yuan worth of total assets of China's financial institutions.
The Big Four's strong market position in China is similar to the level they enjoy in the U.S., Jackson Johnson, president and founder of Johnson Global Advisory said. Johnson Global Advisory is an audit quality advisory firm based in Washington, D.C., with clients globally, including in Greater China.
The Big Four are also able to attract high quality staff, he said. If major Chinese companies hire the Big Four as their auditors for financial statements this can bring down financing costs, the research by Chen and Han showed.
Previous regulatory action against Big Four in China includes a fine of 211.9 million yuan ($30 million) imposed on Deloitte in March 2023 for failing to perform its duty in assessing the asset quality of China Huarong Asset Management Co Ltd.
Frequently Asked Questions
What is the Big Four accounting firms' market share in China?
The Big Four accounting firms audit 18 of China's 20 biggest state-owned companies by assets, or 95.1% of the total assets as of 2023.
Why do major Chinese companies hire the Big Four as their auditors?
Hiring the Big Four as auditors can bring down financing costs, according to research by Chen and Han.
What was the penalty imposed on PwC by Chinese regulators?
PwC was slapped with a six-month business suspension and a record fine of 441 million yuan ($62 million) over the firm's audit of troubled property developer China Evergrande Group.
What is the significance of the Big Four's role in auditing major Chinese companies?
The Big Four's auditing work plays a crucial role in maintaining the integrity of China's financial markets and ensuring the accuracy of financial statements.
What is the background of the research on the Big Four's activities in China?
The research was led by professor Chen Hanwen from University of International Business and Economics and professor Han Hongling from Zhejiang University.
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