Chapter 23  Accounting Services

    In meeting its WTO commitments, China has been stepping up efforts to open wider to the outside world, improve market access, and transform government functions. Over the past three years, professional services represented by legal services and accounting services have witnessed dramatic growth.

    Since 1996, the income of accounting firms in China has been enjoying an annual growth of 10%, reaching RMB10.8 billion in 2003. By June 2002, over 20 world famous accounting firms have sought their presence in China with the setting up of 22 representative offices, 7 Sino-foreign cooperative accounting firms and the approval of 14 associates of these accounting firms. Five leading global accounting firms, namely, KPMG, CGEY, PwC, Deloitte, and Arthur Andersen, all have business operations in China. Their strong competitive edge is demonstrated by their share of the turnover and profit in the industry, which is estimated to be 20% and 30% respectively. The five companies have practically swept all the auditing certification business for companies issuing B shares and H shares as well as the subsidiaries of the MNCs. With the further increase in foreign investment and the deepening reform of state-owned enterprises in China, large accounting firms are going to expect a substantial increase in business and profit. Besides, the burgeoning private enterprises in China also give these accounting firms opportunities for enhancing their presence.

    By the end of 2003, the number of Certified Public Accountants (CPAs) in China reached over 130,000, among which 61,255 were granted business license and over 70,000 were yet to obtain business license. There were altogether more than 4600 accounting firms. According to the information provided by the Chinese Institute of Certified Public Accountants (CICPA), in recent years, over 600,000 participate in the National CPA Examination every year with several thousand people passing the exam and joining CICPA.

    After the reform measures taken by the State Council in 1999 to disconnect itself with all the intermediaries providing business certification, the Shanghai municipal government started to regulate firms providing intermediary services, with the result that the accounting services have been marketized. Presently business for CPAs is quite liberalized with the majority of the services determined by the market. Besides, Shanghai has lifted various irrational restrictions on domestic and foreign intermediaries with regard to market access. In 2003, the number of accounting firms in Shanghai reached 106, employing 7800 people. There were 2700 CPAs and the turnover of CPA firms amounted to RMB2.13 billion, registering a 70% increase over that of 2001. At the same time, some accounting firms stood out  in the market, such as PCPA, Ernest & Young & Dahua Certified Public Accountants Co., Ltd, and Shanghai Zhonghua Certified Public Accountants Co., Ltd. Up to now, famous international accounting firms have got 9 partnership firms, 11 subsidiaries and 2 headquarters in Shanghai. According to the notice released by CICPA in 2003 regarding top 100 accounting firms in China, 15 of them were in Shanghai. For domestic accounting firms in Shanghai and in other parts of the country, competition is mounting. The sector is witnessing expansion of accounting firms as well as diversification of services and clients.

    According to the statistics of the Information Center of the State Auditing Administration, there were altogether 10,000 agencies engaged in state auditing with a total employment of 60,000 people, 100,000 agencies engaged in internal auditing with a total employment of 200,000 people, and 6000 agencies engaged in social auditing with a total employment of about 60,000 people. Compared with developed countries, the auditing industry in China is still moderate in scale, but with great potential for development.

Box 23.1 : China’s commitments with regard to auditing services

    According to China’s commitments with regard to the market access for accounting, auditing and book-keeping services, there are no restrictions on cross-border supply and consumption abroad. For commercial existence, only Certified Public Accountants approved by competent Chinese authorities are allowed to form partnership or limited liability accounting firms. For the movement of natural persons, no commitments have been made other than horizontal commitments. With regard to national treatment, there are no restrictions on cross-border delivery, consumption abroad, and commercial existence and no commitments have been made regarding the movement of natural persons other than horizontal commitments.

    Other commitments regarding the market access for international accounting firms include: allowing foreign accounting firms to form partnership with Chinese accounting firms and allowing the partnership firm to establish cooperative contract with partners in other WTO member countries. Upon entry, national treatment is given to any foreign citizen who has passed the National CPA Examination and wishes to apply for a business license. The applicant shall be notified of the result in writing within 30 days of the submission of the application. Sino-foreign cooperative accounting firms shall not be limited to certified public accounts approved by relevant Chinese authorities. Accounting firms which provide accounting, auditing, and book-keeping services may provide taxation and management accounting services. They are not subject to restrictions imposed on taxation and management consulting firms in terms of forms of business.

    The WTO has made very clear to the world its determination to liberalize the services industry including accounting services. Through GATS, the WTO states its objection against any unnecessary barrier to trade and requires all members to make clear, objective and transparent rules governing trade in services in terms of qualifications, procedures, technical standards and licensing conditions. According to China’s commitments regarding the market access to the services industry, the only restriction is placed on commercial existence in that exclusively foreign-owned firms are allowed to establish their subsidiaries in China only after 6 years of the accession. As a matter of fact, before China’s WTO accession, international accounting firms (the five leading international accounting firms) already found their way into the Chinese market in various forms.

Box 23.2 The breakdown of accounting, auditing, and book-keeping services by CPC

862 Accounting, auditing and book-keeping services	会计、审计和
8621 Accounting and auditing services	会计和审计服务
86211 Financial auditing services	财务审计服务
86212 Accounting review services	会计审核服务
86213 Compilation of financial statements services	财务决算编辑服务
86219 Other accounting services	其他会计服务
86220 Book-keeping services, except tax returns	除纳税申报以外的簿记服务