The Big Four accounting firms tend to dominate the market in almost every country in the world, but China might turn out to be different.
Local firms are benefiting from the development of capital markets and opportunities from domestic IPOs on Chinese stock exchanges, explains Paul Gillis, Professor at Peking University, and they are preparing to compete on business from the large state-owned enterprises.
Making Up Lost Ground
In China, we have already got two of the local firms, affiliated with international firms but still considered to be local firms, have moved up and ahead of a couple of the Big Four firms into the top tier firms. There are others that are close on their tail.''
Winning the Domestic IPO Deals
''What is changing in China is the emergence of China’s capital markets and a lot of IPOs in China, creating an opportunity for local firms. China’s local firms have been doing the right thing to get ready to compete. They have been merging and making themselves bigger. They are winning the bulk of the IPOs, nearly all of the IPOs on China’s stock exchanges, and they are preparing themselves to compete on the big state-owned enterprises that the Big Four have dominated so far.''
Government-Mandated Rotations Also Helping Local Firms
''China has put in place a mandatory auditor rotation, which means that every 5 years or 8 years if they take one of the top 15 firms, state-controlled enterprises have to change auditors and select a new auditor every 8 years.''
''What that does is create an opportunity for China’s local firms to win some of those accounts.''
''The first major rotation took place in 2012 and what happened is that all the state-owned enterprises rotated auditors, but they mostly rotated from one of the Big Four to another of the Big Four. They did manage to extract some pretty significant fee cuts in the process, but they still stayed with the Big Four.
''2020 is the next round of rotations, and in 2020 I think the result is going to be a bit different. I think the local firms are going to capture some of the big state-owned enterprises and start to establish a foothold in serving some of the world’s largest corporations.''
Potentially Global Implications
''The real thing that second tier firms are looking for, firms like BDO and RSM and Grant Thornton, is that if they can win a major account like Petrochina in China, then they suddenly have credentials around the world that they can serve a large national oil company. So if the national oil companies in Brazil or Venezuela come on the market, they have a good chance of winning it.''
''This could change the landscape for accounting all around the world.''