Development of International Accounting Firms in China XIE Rong Professor & Vice President, Shanghai National Accounting Institute May 24, 2006

Shanghai National Accounting Institute Development of International Accounting Firms in China The Economic Reform and the Opportunity for the Development of International Accounting Firms in China The Internationalization and Localization of International Accounting Firms in China The Roles, Values and Experiences of International Accounting Firms in China The Expectations for the Development of CPA Profession in China

Shanghai National Accounting Institute The Economic Reform and the Opportunity for the Development of International Accounting Firms in China Three important events to promote the development of CPA profession in China 1980s Economic Reform and Open Policy 1990s Development of Stock Exchanges 21 Century Entering into WTO

Shanghai National Accounting Institute The Economic Reform and the Opportunity for the Development of International Accounting Firms in China The Economic Development in the past 15 years No. of foreign invested companies (000) No. of listed companies ,0881,378 GDP (US$ billions) ,0801,649

Shanghai National Accounting Institute The Economic Reform and the Opportunity for the Development of International Accounting Firms in China The Development of CPA Profession No. of CPA(000) No. of CPA Firms Total Revenue (RMB billions) 15

Shanghai National Accounting Institute The Economic Reform and the Opportunity for the Development of International Accounting Firms in China 1980s, Big six representative offices established in China , Big Six established joint accounting firm respectively with its Chinese partner (fifty-fifty model) –Operating responsibility –Financial responsibily

Shanghai National Accounting Institute The Economic Reform and the Opportunity for the Development of International Accounting Firms in China After entering into WTO, international accounting firms have got a rapid development in China, to the end of June 2005, international accounting firms had established: 27 member firms 7 associated firms 20 representative offices A several hundreds passed CICPA exam. 32 have got CICPA certificates.

Shanghai National Accounting Institute The Economic Reform and the Opportunity for the Development of International Accounting Firms in China Big 4 international firms vs. Big 4 Local firms (2004) Local Firm Reven ue No. CPA Per CPA Lixin 163m2720.7m Xin yong 121m2310.5m Zhong Shen 117m2970.4m Yuehua 101m3160.3m Int. Firm Reven ue No. CPA Per CPA PwC 1,247m4672.7m KPMG 717m2313.1m DTT 668m1813.6m EY 628m1544.1m

Shanghai National Accounting Institute The Internationalization and Localization of International Accounting Firms in China Internationalization –Office management –Quality management –Training –Technical support

Shanghai National Accounting Institute The Internationalization and Localization of International Accounting Firms in China Localization –Staffing –Clients –Standards

Shanghai National Accounting Institute The Roles, Values and Experiences of International Accounting Firms in China Roles –Attract Foreign Investment: serve multinational companies –Help Chinese big companies go to international capital markets –Promote the development of accounting profession in China

Shanghai National Accounting Institute The Roles, Values and Experiences of International Accounting Firms in China Values –International capital raising –Train competent accounting professionals –Multi-services –Improve the understanding and value of accounting profession in China

Shanghai National Accounting Institute The Roles, Values and Experiences of International Accounting Firms in China Experiences and Challenges –Flow of trained staff –High service fees –Rapid expansion vs. quality control –Market share with local accounting firms –Monopoly and Competition in accounting profession

Shanghai National Accounting Institute The Expectations for the Development of CPA Profession in China Market Demands for CPA services –Foreign invested companies –Listed companies –State owned enterprise Totally around 300,000 CPAs needed

Shanghai National Accounting Institute The Expectations for the Development of CPA Profession in China CPA examination increased rapidly –1991: 10,375 –1995:135,000 –2000:260,000 –2004:315,000 Continuing professional education –Three National Accounting Institute established (Beijing, Shanghai and Xiamen), provide short-term training courses and MPAcc degree education –Accelerate of the improvement of auditing standards

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