China tells state firms to phase out big four

The Chinese government has instructed state owned companies to phase out contracts with the big four international audit firms, according to reports from The Guardian.

The companies have reportedly been told to use audit firms from China and Hong Kong in a bid to support the local audit industry and protect data from the state owned firms.

The new guidance is not expected not to apply to offshore operations of Chinese firms, including those based in the US, but may force their parent companies to look for homegrown substitutes.

Chinese regulators have previously expressed concerns about whether smaller auditors can deliver similar-quality audits compared to the big four.

Some also fear that the use of lesser-known auditors could make it harder for state-owned businesses to attract international investment.

While no deadline has been set for the change, exclusion from the Chinese market could be a financial blow for the accounting firms. Beijing states the companies earned a combined 20.6bn Chinese yuan (£2.5bn) from their work for Chinese clients in 2021.

The Guardian stated that around 60 Hong Kong-listed and Chinese-headquartered firms have changed their auditors since September 2022 and a further 80 companies listed in Shanghai and Shenzen have 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.