Trend to go global is creating more audit work for Big Four

PUBLISHED : Thursday, 26 April, 2007, 12:00am
UPDATED : Thursday, 26 April, 2007, 12:00am

The wave of giant state-owned enterprises in China 'going global' has led to a surge in demand for international accounting expertise to help prepare listing documents and ensure that their financial reports comply with international standards.

All Big Four firms - Deloitte Touche Tohmatsu, Ernst & Young, KPMG and PricewaterhouseCoopers - are recruiting aggressively to ensure they have the personnel to take on the listing mandates coming to the market while coping with demand for plain-vanilla auditing work that continues to provide the basis of their revenues.

Tax changes unveiled last month will probably prove another source of fresh demand.

According to data tracker Dealogic, there were 97 registered China initial public offerings worth HK$13.25billion in the pipeline last month compared with 87 deals worth HK$15.5billion at the same time last year.

However, last year's first quarter accounting came before the successful launch of the world's biggest IPO when China's biggest lender, Industrial & Commercial Bank (ICBC), came to the market to raise US$21.9billion in October.

Ernst & Young had the distinction of helping to bring ICBC's public float to the market and, at the peak of its audit and due-diligence workload, the firm had about 500 audit professionals working on the offer documents, according to Paul Go, Ernst & Young China partner and head of risk-advisory services.

Deloitte China's chief executive, Peter Bowie, said the process of restructuring, privatisation and public listings under way in China was driving demand for audit services that accounted for half or more of total revenues for most of the Big Four, a far higher proportion than audit commands of revenues in their operations in the developed markets of the United States, Britain and Canada.

'The China market is at a different stage of development compared with the US, Britain or Canada, where audit's contribution is much lower, and the reason for this is the rapid growth and restructuring of Chinese companies which is driving demand for audit,' Mr Bowie said.

Also ranking high in revenue contribution is tax advisory work. According to Peter Kung, a senior partner at KPMG, the firm had a large market share serving state-owned enterprises and foreign-invested enterprises.

Mr Kung said he expected growing demand for the firm's expertise in the tax arena in China because of the changes in the tax laws.

PricewaterhouseCoopers China markets leader, Frank Lyn, said a key area in which the practice would contribute to the mainland's economic growth was in supporting the reform of state-owned enterprises.

'We will continue to introduce international standards of accounting and governance practices to Chinese companies to help them compete in the global corporate area,' Mr Lyn said.