Business Needs Further DiscipliningClaims of financial data forgery have added pressure to the voluntary liquidation of China's domestic accounting regime.It indicated that Chinese accounting firms are far from ready for the fierce competitions that awaits them when China enters the World Trade Organization (WTO). Li Jie, an official with the Chinese Institute of Certified Public Accountants (CICPA) told China Daily that domestic accounting firms are lagging behind international standards regarding practitioners' qualifications, services and management. As the industry regulatory organization, the CICPA will place stricter supervision over the operation of accounting firms, aiming to create a favorable climate for their healthy and rapid growth, Li said. Though the gap between domestic accounting firms and their foreign counterparts cannot be filled overnight, Li is confident that it will not take very long. There were optimistic reports on last week's Securities Times, saying that a few domestic accounting firms can submit reports that can rival those of the five international leading accounting firms. However, the challenge to domestic accounting firms after the WTO entry can not be underestimated. According to China's commitment in the WTO agreement, more foreign accountants and accounting firms will compete in the Chinese market. With growing market demands for accounting services, it is foreseeable that competition will become more ferocious. If domestic accounting firms fail to prepare fully, they might face the loss of qualified employees and large domestic clients in the battle with international counterparts, Li warned. There are about 4,674 accounting firms in China, employing some 58,000 certified public accountants (CPAs). However, most of them are small-sized and lack adequate staff. Only 86 firms have over 60 CPAs each and have an annual business volume exceeding 15 million yuan (US$1.8 million) each. In general, Chinese accountants have not enough knowledge about international accounting practices and are not well versed in computer skills, due to a lack of proper training. Compared with international accounting firms whose services cover various fields including accounting, auditing, asset evaluation, taxation and management consultation, most domestic firms provide one single service -- auditing. Moreover, domestic firms have many problems in their operation systems because of lack of sound supervision mechanisms, which gives rise to serious fraud cases in the securities market. A series of scandals such as the latest Guangxia (Yinchuan) Industry case bitterly defamed the credibility of domestic accounting firms. Shenzhen-listed Guangxia fabricated its huge profits in its annual reports for several years, but still passed auditing of its accounting firm. Because of the negative effect of these scandals, special attention has been given to reinforce industry regulation and supervision over accounting firms. CICPA vows to conduct joint inspections with other governmental departments to raise efficiency and to ensure enforcement in tackling illegal activities. More rules and regulations will be set up to discipline accounting firms in a bid to increase the competitive capability of domestic firms after the WTO entry, according to Li. It is perhaps fortunate for domestic firms that the opening of the Chinese accounting market will be a gradual process in accordance with relevant WTO agreements, said Li. In addition, CICPA will issue policies to encourage mergers and acquisitions among domestic firms to form bigger companies that will be capable of international competition. Source: China Daily |
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