Big shake-up for 'Big Four'

KPMG's office in Shenyang, the capital city of Northeast China's Liaoning province. KPMG, Deloitte Touche Tohmatsu, Ernst & Young and PricewaterhouseCoopers, commonly known as the "Big Four", saw their market shares being attacked by their Chinese counterparts in China. [Photo / China Daily]

International accountancy firms to face more competition from Chinese

The halo over the "Big Four" accounting firms as the first choice for business and most-wanted employer is slipping as they face rising challenges from fast-growing domestic competitors.

According to the table for the top 100 accounting firms in China ranked by the Chinese Institute of Certified Public Accountants in late June, the revenues of the top 10 domestic firms grew 38 percent year-on-year in 2011.

In comparison, revenues for KPMG, Deloitte Touche Tohmatsu, Ernst & Young and PricewaterhouseCoopers, commonly known as the "Big Four", only rose 6 percent in China.

According to CICPA, the market share of the Big Four among the whole industry declined to 25 percent in 2011 from a peak of 33.5 percent in 2008.

In June, 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 ($157,000) will be offered to those that achieve certain goals, such as reaching an annual income of 1 billion yuan or ranking among the top 15 on CICPA's annual table, according to the statement.

"We plan to offer 20 million yuan a year in supporting measures," said Chen Yugui, vice-president and secretary-general of CICPA.

The policy came after the Ministry of Finance announced a localization program in May requesting the Big Four reduce the dominance of non-local partners, arousing concerns that it may signal a "pressing down" on the joint ventures in China established by the Big Four.

According to the plan, the Big Four were required to reduce the proportion of non-local partners to 20 percent from the current average of 50 percent within the next five years. Only partners with local qualifications could be the chief partner.

"The program is in line with their development strategy in China and will not bring down the quality of their services," said Yang Min, director of the accounting department at the Finance Ministry.

"China has not forced the foreign partners in the Big Four to quit, as we have listened to both domestic and foreign partners. The program will be a thorough and proper plan for their transition period," Yang told Xinhua News Agency.

However, an announcement by the Finance Ministry in June 2011 said otherwise.

In the statement, 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 natural to expect the share of the Big Four to continue declining as the domestic accounting profession strengthens," said Scott Univer, general counsel of accounting firm WeiserMazars LLP and former general counsel of the world's fifth largest accounting network, BDO International.

"As the Chinese economy moves away from centrally controlled and State-owned enterprises, the Big Four would have to adapt to competition with smaller firms with advantages in flexibility," Univer said.

But "they may find themselves not to be as well positioned as domestic firms to benefit from the expansion of startup and entrepreneurial firms," he said.