by: Paul Gillis, November 17, 2010
Grant Thornton shocked the CPA
profession in Hong Kong last month when it expelled its
Hong Kong member firm. While many speculated this was a result of the
sudden disappearance of former Hong Kong managing partner Gabriel Azedo after Grant Thornton
turned him in to Hong Kong commercial crime authorities for
"inappropriate" conduct. Azedo
was recently arrested in Spain.
While Azedo might have been the last
straw, it now appears that relationships between GTI and its Hong Kong member
firm had been on the rocks for quite a while. The problem appears to be
that the Hong Kong firm was resisting efforts to more closely
align their practice with Grant Thornton's China member firm.
Grant Thornton has underachieved in China; its member firm is ranked
16th on the mainland, far below its second tier rivals BDO, RSM and Crowe
Horwath. But in order to win larger engagements in China, the Chinese firm
needed to win Hong Kong listings. A plan to allow some of China's larger
CPA firms to audit Hong Kong listed companies has stalled over regulatory
concerns. If Grant Thornton was to succeed in China it needed the close
cooperation of its Hong Kong member firm, which had the necessary licenses to
audit mainland companies listed in Hong Kong.
The Big Four went through this
battle a decade ago. When the practices were developing in China the
global firms ran things because the Hong Kong member firm was unable or
unwilling to take on the responsibility for China. Tensions arose
between the China and Hong Kong firms because the China firm felt they were
being held hostage by the Hong Kong firm when they served Chinese companies
issuing H shares or Red Chips and needed the Hong Kong firm to sign off on
audits. The Big Four resolved this
problem by merging their China and Hong Kong operations. It appears that is
what GTI wished to accomplish, but the Hong Kong partners would not
agree.
Most of the 500 Grant Thornton
partners and staff have joined BDO. Jingdu Tianhua, Grant Thornton's Chinese
member firm has opened an office in Hong Kong and attracted about 40 former
Grant Thornton personnel. Grant
Thornton expects to grow the Hong Kong firm to 100 staff by
yearend and to 150 by summer 2011. The acquisition in Hong Kong by fifth
ranked BDO of most of Grant Thornton’s 6th ranked member firm will considerably
strengthen BDO in Hong Kong. BDO's two member firms in China together
hold down 5th place on the mainland, and it appears that BDO has found the solution
to the problem of coordinating the Hong Kong and mainland practices that
apparently evaded Grant Thornton.