The Chinese government has reportedly instructed state-owned companies to phase out contracts with the big four accounting including KPMG and EY, as authorities try to address security concerns and curb the influence of western-linked auditors.
China’s finance ministry is among the government entities that has issued informal guidance last month, urging state-owned corporations to let contracts with Deloitte, KPMG, EY and PwC expire, according to Bloomberg News.
They have reportedly been told to use local auditors from China and Hong Kong, as part of efforts to support the local audit industry and protect the data of state-owned firms, particularly those working in advanced technology.
The new guidance is said not to apply to offshore operations of Chinese firms, including those based in the US, but may force their parent companies to look for home-grown substitutes.
It comes as Beijing tightens its grip on data security and protect the country’s national and economic interests.
While no deadline has been set for the change, the gradual exclusion from the Chinese market could be a financial blow for the accounting firms, which Beijing says have earned a combined 20.6bn Chinese yuan (£2.5bn) from their work for Chinese clients in 2021.
Around 60 Hong Kong-listed and Chinese-headquartered firms, both in the public and private sector, have changed their auditors since September 2022 according to Bloomberg. A further 80 companies listed in Shanghai and Shenzen have also reportedly changed auditors since December.
A growing number of those contracts have been handed to local auditors including RSM China, Moore Global, and Pan-China Certified Public Accountants. However, Chinese regulators have previously expressed concerns that smaller auditors can deliver similar-quality audits and would be able to handle more challenging work for listed clients. Some also fear that the use of lesser-known auditors could make it harder for state-owned business to attract international investment.
KPMG and PwC declined to comment. EY and Deloitte did not immediately respond to requests for comment.
