The Big Four are back in China | China Accounting Blog | Paul Gillis

 The Big Four are back in China 

I have been tracking the development of the accounting profession in China for many years. I have published on this blog a ranking of the top 100 CPA firms in China since 2011 based on data published by the Chinese Institute of CPAs (CICPA).  The CICPA published this informational annually in the same format, but suddenly stopped after pubilshing 2015 data in 2016. But they have now published data for 2017, albeit in a slightly different form. It is not entirely clear whether the reported numbers are comparable.  Here are the rankings for 2017:

The rankings have changed quite a bit. The last two years have been very good for the Big Four, which have grown 20% while local firms experienced a minor decline in revenue of less than 1%. The Big Four share of the Top 100 market has grown from 27% to 34%, a remarkable reversal of the market share declines of earlier years. 

I believe that the poor performance of local firms can be explained by regulatory actions. Early in 2017 Chinese regulators shut down two of the largest local firms for several months due to audit failures.  Ruihua, which was ranked second in 2015 and which I thought might climb over PwC to first place, experienced a revenue decline of 29%. BDO, ranked third in 2015, slide to fourth with anemic revenue growth of 5%. While I support strict audit regulation, I fear that the Chinese system is unfair to large local firms that audit thousands of listed companies.  

For the first time, the CICPA has disclosed the split between audit and non audit revenues at the firms. The Big Four earn 84% of their revenue from audit while local firms earn 86%. Those ratios are much higher than accounting firms in other countries.  

The measures of market concentration reveal an Herfindahl-Hirschman Index of 498, higher than the two years ago measure of 444, but well below the 1500 typical of Western economies. 

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