China Tightens Rules for Auditors of Listed Firms

February 6, 2012

China has tightened the qualifying criteria for firms wanting to audit listed companies, to protect investor interests, according to new regulations published on Monday.

The new regulations, made jointly by the finance ministry and the securities watchdog, were aimed at improving auditing quality for listed firms, according to a statement on the finance ministry’s website (www.mof.gov.cn).

China has been one of the fastest-growing markets in the world for accounting firms with total revenues growing at 20 percent annually, offering about $1.5 billion to the so-called Big Four in 2010 — namely Deloitte, Ernst & Young , KPMG, and PricewaterhouseCoopers.

That growth has also been accompanied by accounting fraud scandals. In 2010 and 2011, dozens of Chinese firms traded in Canada and the United States were delisted over scandals.

Trading in the companies’ shares have been suspended, share prices have plunged and probes have been launched.

“(The new rules) will help to protect investor interests and maintain capital market order, and to promote healthy development of the capital market,” the finance ministry statement said.

The U.S. Securities and Exchange Commission and the Public Company Accounting Oversight Board, the U.S. auditing watchdog, have been in talks with the Chinese government to allow for joint inspections of auditing firms following the accounting scandals.

The new rules require an auditing firm must to have at least 80 million yuan ($13 million) annual revenue, up from 16 million. Also, an auditor must have 200 certified accountants, from the previously required 80, before it can serve publicly traded companies.

According to the website of the China Securities Regulatory Commission, China has 53 accounting firms qualified to audit listed firms. The regulators said auditors must meet the new regulations by the end of 2013.

China has previously upgraded its rules for auditors — the previous modifications were made in 2007 with the aim of making local auditors bigger and stronger.

($1 = 6.3028 Chinese yuan) (Reporting by Zhou Xin and Sui-Lee Wee; Editing by Dan Lalor)

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