Postings | China Accounting Blog | Paul Gillis

Postings

Chinese audit regulators get tough

Chinese regulators have banned the Chinese affiliate of BDO from auditing public companies for two months, the second suspension the firm has faced this year.  In January, both BDO and Ruihua, the Chinese affiliate of both Crowe Horwath and RSM, were banned for two months. The penalties seem harsh by international standards. 

The rules provide that any firm that has two disciplinary actions within two years must face a suspension. RSM and BDO are the second and third largest accounting firms in China, trailing only PwC.  Because the Big Four firms audit few locally listed companies, they are unlikely to trip the two-action wire, while RSM and BDO audit about 1,000 A-share listed companies each and therefore would seem to be at great risk of tripping the wire.  

The January ban came during the audit season, causing the firms to lose many clients.  

I have a mixed view on these actions. First, I think they are a good thing, reflecting that China is taking audit quality seriously. Audit quality is essential to the orderly development of China’s capital markets. On the other hand, I think the penalty is too severe and may hurt the development of the profession. I fear the short-term result may slow the development of the capital markets. 

Copyright ©  2015         Paul L. Gillis all rights reserved