Bigger is better when doing accounting business in the mainland, says Nick Allen, partner in charge of audit and assurance services for Hong Kong and China at PricewaterhouseCoopers. 'One of the critical factors for success in China is generally the size of the practice. The major assignments everyone is competing for, and we are seeking to build our practice around, are frequently large state-owned enterprises and listings, which require significant resources to bring them to market and audit thereafter,' Mr Allen says. 'In our experience, overnight expansion is quite difficult in China. It is not easy to find the different types of people you want, and in large numbers. PricewaterhouseCoopers' merger with Andersen [in 2002] enabled us to double our size overnight, without the difficulties one would have if one tried to grow indigenously.' PricewaterhouseCoopers now has more than 2,000 audit staff in the mainland, compared with more than 1,000 in Hong Kong, enabling it to give large mainland assignments the geographical coverage they need. The scale of such assignments may require audit teams to visit numerous clients' premises in different provinces to complete the necessary work, Mr Allen says. 'It is not unusual for us to mobilise 300, 400 or 500 people in order to complete these types of assignment. We would like more people, and we do recruit between 600 and 750 each year in China alone. We have nine offices in China, and the past nine months after Sars have been very active in terms of corporate activity in China,' he says. 'Experience is important, as you cannot realistically do an audit by sending out 700 new graduates to do the work. A team should be a mixture of different experiences and skill sets. Mergers with local firms have advantages, but not the same level of training and experience as their opposite numbers in the major accounting firms. There are risks in doing audit with people who can't fully understand the methodology. You can always try to recruit from your competitors, but this is not a very significant source of people.' The firm also transfers staff from overseas, particularly Hong Kong, to work in the mainland, but language skills are important, especially when critical specialist needs such as in the banking and insurance sectors are involved. A focus of PricewaterhouseCoopers is to help multinational companies enter the mainland by managing their tax and compliance requirements according to Chinese regulations. The firm has specialist China tax divisions based in Hong Kong and the mainland which provide multinationals with that service. 'We are about helping [multinationals] by performing due diligence assignments when they are making acquisitions in China or making investments generally, so that they understand the risks they are taking on and feel comfortable with the financial information obtained,' Mr Allen says. Another strategy is targeting key state-owned enterprises - such as PetroChina, China Unicom, Sinotrans and Bank of China - which are coming on the market. Global experience shows that once such audit appointments are made, changes occur relatively infrequently. It is difficult to break into the market, Mr Allen says, but once a firm succeeds, and provides proper service, it can expect to obtain client loyalty. In terms of cross-border expertise, Mr Allen says knowledge of the laws in different jurisdictions is critical. Companies seeking to list must comply with regulations and apply different accounting standards than those required for a Hong Kong listing, so auditors need to be familiar with mainland, Hong Kong, United States and international accounting standards. Global corporate scandals of the past two years have resulted in many changes to accountability, among them the passing of the Sarbane-Oxley Act, which introduces significant restrictions on non-audit services that accounting firms can provide to Securities and Exchange Commission-registered audit clients. It also requires audit clients to upgrade their systems of internal control and requires the auditor to give an opinion as to whether there are any significant weaknesses in the system of internal control. This requirement has significant implications for former state-owned enterprises that are listed in the US, as they have to comply with these regulations by the end of next year. 'Apart from this [Sarbane-Oxley] Act, the other post-scandal implications mean that regulators around the world are seeking consistency in their accounting practices that companies use in their financial statements,' Mr Allen says. 'So, a company in China will have to account in the same way as would those in London or New York. Decisions once made locally now have to conform globally. The range of decisions that can be taken locally has narrowed because of this trend.' PricewaterhouseCoopers sees China as 'a tremendous opportunity', he adds, but more cross-border co-operation is needed so more Chinese accounting professionals can come to Hong Kong, and travel internationally, for training.
