April 2012 Issue 505-506 … · 2014-11-27 · more than half preferring a 10-12 year maximum term. STRATEGy Baker Tilly expands in denmark, Ghana Baker Tilly International has added

● BDO offices merge with Grant Thornton Australia ● IAB investigates the non-audit services debate

● Sweden survey: Solid growth in spite of rise in audit exemption threshold ● China survey: Consolidation and restructuring gathers pace

April 2012 Issue 505-506 www.InternationalAccountingBulletin.com

Setting standardsHow Deloitte helped London organise an Olympic Games

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Editorial Advisory BoardFrank Arford, Crowe Horwath International CEO

Kevin Arnold, Nexia International executive director

Geoff Barnes, Baker Tilly International president and CEO

Graeme Gordon, Praxity executive director

Stephen Jacobs, INPACT International president

Jon Lisby, Kreston International executive director

James Mendelssohn, MSI Global Alliance CEO

Christian Mouillon, Ernst & Young global vice-chair, assurance

Jeremy Newman, independent

Ed Nusbaum, Grant Thornton International CEO

Michael Reiss von Filski, Geneva Group Inter-national CEO

Liza Robbins, Morison International CEO

Martin van Roekel, BDO International CEO

Jean Stephens, RSM International CEO

Robert Tautges, HLB International CEO

Pauline Wallace, PwC head of public policy and regulatory affairs

EdiToR’S LETTERInternational Accounting Bulletin

China is already the world’s second larg-est economy and in a year’s time it will

become the second largest profession of public accountants.

Based on 2011 figures, China had 5,400 fewer accountants than the UK at firms sur-veyed by International Accounting Bulletin. Whereas in 2007, the UK had nearly 30,000 more staff than China across the same seg-ment of the profession (see below).

These firms are the largest within their respective countries and belong to global accounting networks and associations.

The Big Four and Grant Thornton are still bigger firms in the UK by headcount, but their Chinese counterparts are quickly catch-ing up. BDO, RSM International, Baker Tilly International, PKF International and Nexia International already have larger workforces in China.

China’s workforce has swelled by 166% in the past five years compared with 113% in the UK. Although China is rising quickly, it is still some way to catch the US, which has 237,422 accountants at CPA firms.

In terms of revenue, China’s top firms are much smaller, collectively earning $3.89bn to the UK’s $16.7bn and $52.5bn in the US. But as China is a developing economy, revenue comparisons are rather pointless.

China’s rapid emergence is significant for several reasons.

China is the first true Eastern powerhouse in accountancy. Although China is still com-ing to grips with global standards in account-ing and auditing, it will have an important role in how accounting evolves in the future. Western standards in accounting and busi-ness will one day have a Chinese flavour.

China is ambitious to grow its profession and this is being heavily pushed (and con-trolled) by the Ministry of Finance, which sets it apart from other BRIC countries. Such a hands-on approach is unusual but under-lines the government’s intentions to grow Chinese firms to one day compete with the Big Four. At present, that sounds unlikely but in time the global profession could have a Big Six or a even a Big 10, with a Chinese-backed players.

Global mid-tier networks are lining up to form partnerships with large Chinese firms but one day Chinese firms will form their own global networks. Shine Wing is an early example of a firm that is spreading its wings (pardon the pun) abroad, and it won’t be the last. We’ve all heard of Chinese reverse takeovers of companies listed in the US, but what about a Chinese reverse takeover of a mid-tier network?

Sound fanciful? I wouldn’t bet against it.

Arvind [email protected]

China’s white-collar army

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Subscribe to The Accountant for: • IPaccesstoourcontent.Soyourstudentscanaccessour

content campus-wide with one login

• Contentyoucantrust.Wehave125yearsofexperiencedelivering accountancy news.

• Trulyglobalanalysis.Wecoverarangeofstoriesfromaroundthe world, so your students get a wide perspective of the sector.

SIGN UP FOR THE FREE NEWSWIREGet free weekly updates and free content. Sign up here:

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DON’T mISS OUT. Subscribe to The Accountant today. Contact our subscriptions team on +44(0)20 7563 5688 or email us at [email protected] to find out more. 0

50

100

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250

20072008

2009 2009

2010 2010

2011 2011

20022003

2004

China (166%)

United States (106%)

United Kingdom (113%)

Country (5-year growth)

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n RiSiNG dRAGoNChina’s accounting workforce is growing at a quicker rate than the US and UK

02-03NEWS & ANALySiS

n PwC Oz negligent in Centro case

n Baker Tilly expands in EMEA

n Arford successor named at Crowe

n BDO offices merge with GT Oz

dELoiTTE LoNdoN 2012

As the London 2012 Olympic Games draws closer, IAB takes a look at one of the driving forces behind the organisation of the world’s largest sports event

08-10FEATURES

08-09: NoN-AUdiT SERviCES

Providing advisory services to audit clients has come under increased scrutiny over fears it could compromise independence. IAB explores both sides of the debate

11-20CoUNTRy SURvEyS

11-14: SWEdEN

Swedish firms enjoy solid growth in spite of an increase to the audit exemption threshold for SMEs

15-20: CHiNA

Consolidation, licensing, regulation and a talent shortage are among the top issues in a market where CPA firms cannot grow fast enough

CovER SToRy 04-07

CoNTENTS

2 y April 2012 www.InternationalAccountingBulletin.com

NEWS diGEST International Accounting Bulletin

IAB oNLiNE - APRiL

Linkedin Group World Accounting Intelligence

Twitter WAI_News

Facebook page World Accounting Intelligence

Scan our QR code for quick smartphone access to iAB

Top 5 articles

US Congress threatens to block audit firm rotation

IAB Award winners revealed

PwC admits negligence, not liability, in Centro suit

BDO’s Sydney, Melbourne offices to join Grant Thornton

Lehman Bros creditors to receive first payout in 2012

Most re-tweeted article

EU businesses against audit market concentration

Join our online community

Read in 157 countries

note: all words and figures done in Indd file colour is Pantone 655 EC

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United Kingdom (22%)

United States (17%)

Australia (5%)

Canada (4%)

India (3%)

Other (49%)

RSM Tenon chairman Adrian Martin will step down from the board as soon as a successor is found. Non-executive director Michael Findlay will also step down in May to rejoin Bank of America Merrill Lynch.

Grant Thornton UK has appointed Scott Barnes for a second term as chief executive. Barnes was first appointed in 2008.

PwC has appointed Guy Shepherd as head of actuarial and modelling services. In his most recent role, Shepherd was responsible for implementing Prudential’s IT

programme, underpinning EU insurance regulation Solvency II.

Ernst & young (E&y) has appointed david Holtze as global vice-chair for tax and member of the firm’s global executive. Holtze joined E&y three decades ago and has been global chief operating officer for tax since 2008.

PKF UK has appointed Marc Flack as a senior manager in the firm’s London not-for-profit team. Flack previously worked at Grant Thornton, serving the firm’s charity sector clients.

Crowe Horwath US Coo Kevin McGrath (pictured) will succeed Frank Arford as Crowe Horwath international chief executive when Arford retires in July. in the past five years, Arford has led Crowe Horwath international to revenue growth of 32% to $2.89bn. during this period the network has grown its headcount by 52%. <

MovERS & SHAKERS

MERGERS ANd ACQUiSiTioNS

Moore Stephens grows in Belgium

Belgian firm Moore Stephens Verschelden-Walkiers & Co has merged with Van Havermaet Groenweghe to form the sixth largest firm in the country. Van Havermaet Groenweghe will add 170 staff to Moore Stephens Belgium, which grows to 400 staff. The firm plans to specialise in corporate finance and family office services, while expecting most growth from its HR services group.

REGULATioN

EU business oppose audit concentration

A majority of 1,000 European businesses support a more diversified audit market consistent with the EC’s audit reform proposal, a Grant Thornton survey found. Sixty percent of businesses surveyed said the audit market would benefit if it expanded outside the Big Four and a majority believe mandatory rotation would help avoid over-familiarity between an auditor and client, with more than half preferring a 10-12 year maximum term.

STRATEGy

Baker Tilly expands in denmark, Ghana

Baker Tilly International has added member firms in Denmark and Ghana. Copenhagen-based

Athos will be branded as Baker Tilly Copenhagen and has five partners and 45 professional staff that will add to the existing 100 partners and 500 staff at the firm. In Ghana, Andah + Andah is Baker Tilly International’s first member firm and has three partners and 14 professional staff.

LEGAL

PwC Australia admits negligence in Centro suit

PwC Australia has admitted negligence but not liability in a multi-million dollar case brought against the audit firm and owner of former client Centro. The admitted flaws relate to a $1.1 billion short-term loan that had been miss-classified as long term, causing the then second largest shopping centre company in Australia to nearly collapse. The class action against Centro and PwC is in its seventh week and was filed by two sets of shareholders who are suing the group and PwC A$200m ($209m) in damages.

STRATEGy

HLB expands in China

HLB International has admitted Sichuan Zhongfa as its fourth Chinese member firm. Chengdu-

based Sichuan Zhongfa has more than 300 staff and 28 partners, providing audit and assurance, tax consultancy, valuation and appraisal, investment construction audits, and consulting on engineering projects.


deloitte US acquires consulting firms

Deloitte US has acquired restructuring firm CRG Partners and human resources technology consultancy firm Aggressor. New York-based CRG Partners is a provider of operational and financial restructuring services. Business and IT consulting firm Aggressor specialises in Workday, a software-as-a-service enterprise solution for global human resources, payroll and financial management.

LEGAL

deloitte Kenya investigated over CMC Motors audits

The Institute of Certified Public Accountants of Kenya (ICPAK) is investigating Deloitte over allegedly misreporting financial statements of troubled company CMC Motors. Deloitte is accused of overseeing inflated CMC Motors revenues and failing to disclose the company’s subsidiary in South Sudan in its annual reports. ICPAK said the probe into Deloitte may involve the firm’s previous auditor PwC Kenya. <

NEWS RoUNd-UP


NEWS ANALySiSInternational Accounting Bulletin

Grant Thornton Australia is on the verge of merging with BDO offices in Melbourne and Sydney, creating the largest national firm outside of the Big Four.

At the time of writing, the move was being finalised by stakeholders and lawyers, and it is expected BDO offices will begin trading as Grant Thornton in May.

The merger adds A$85m ($87m) to Grant Thornton’s annual revenue, which increases to A$245m. The firm will catapult above BDO into sixth position, behind WHK Group and above Baker Tilly Pitcher Part-ners (see chart).

BDO’s revenue will drop from A$214m to A$130m, making it the ninth largest firm.

Fifty-five partners and 462 staff will join Grant Thornton, increasing its headcount to 153 partners and 1,339 staff. The largest office will be in Melbourne with 512 staff followed by Sydney with 380 staff.

Grant Thornton claims the deal will make it the undisputed market leader of Australia’s middle market.

Although WHK Group earns more annual revenue, it serves smaller clients than Grant Thornton and is made up of a large num-ber of regional offices – 59 in total. Grant Thornton is a national firm that only oper-ates out of Australia’s five largest cities – Sydney, Melbourne, Brisbane, Perth and Adelaide.

“For some time we believe we needed to have a certain scale and service mix for the Sydney and Melbourne markets. We’ve been actively looking at organisations, hence our discussions with BDO’s Sydney and Melbourne practices in January,” Grant Thornton chief executive Robert Quant said.

“We felt they would complement us in those markets significantly. It brings up our Melbourne office to a circa A$90m practice and our Sydney office to a circa A$80m prac-tice. This makes them the largest outside the Big Four.”

Grant Thornton is also the largest firm outside of the Big Four in Adelaide and the sixth largest in Brisbane and Perth, behind BDO. Quant told IAB Grant Thornton was not interested in pursing other BDO offices because their profile did not match Grant Thornton’s strategy.

Back to the drawing board?For BDO, the loss of its presence in Sydney and Melbourne means it must now recruit new practices to plug gaps in Australia’s two

largest business centres. BDO may consider whether it should

retain a federation of firms structure or amal-gamate its operations to become a national firm.

Federation of firm structures are popular among Australia’s mid-tier due to the coun-try’s large geography and sparse popula-tion, which is heavily concentrated in state capitals. However, Australian middle market companies are increasingly operating on a national and international basis, which poses the question of whether a federation struc-ture provides an appropriate level of quality and consistency across the board.

The decision for BDO and its Sydney and Melbourne offices to sever ties was con-

firmed in March. Problems began in 2007 when BDO’s Sydney, Canberra and Mel-bourne offices decided to merge operations. The firm took on tens of millions of dollars in unsecured loans to allow partners to cash out the value of their goodwill. This led to legacy issues and the firm has struggled to attract and retain partners.

Mergers between Grant Thornton and BDO firms are not uncommon as they are often of a similar size and culture. In the past few years, Grant Thornton and BDO firms have been involved in mergers in South Afri-ca, Hong Kong and Poland.

BDO declined to comment on the merger or its future plans in Australia. <

Arvind Hickman

BDO offices join Grant Thornton AustraliaMERGERS ANd ACQUiSiTioNS


n European MEP Sajjad Karim says the EC will not be swayed by lobbying.

Perth18 partners121 staff

Adelaide12 partners91 staff Sydney

44 partners380 staff

Brisbane19 partners134 staff

Melbourne60 partners512 staff

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Revenue ($Am) 160 85 245

Partners 98 55 153

Personnel 877 462 1,339

offices 5 3 8

n AUSTRALiATop 10 accounting firms by revenue


Athletes will be aiming to break personal bests at the London Olympic Games. Deloitte has already smashed records in the remarkable service it has provided to LOCOG. Arvind Hickman reports

Setting new standards


In 80 days the world’s top athletes will descend upon London to compete at the 30th Olympiad. It will be the largest peace time event in history – 19 days of

sweat, blood and tears across 36 sports, fea-turing 10,500 athletes and watched by 7.6m fans, equal to nearly the entire population of the UK capital.

While all of the focus will be on superstars, such as 100m sprint sensation Usain Bolt, a small army of games organisers and volun-teers will be working tirelessly behind the scenes to ensure this sporting circus runs as smoothly as possible and to a strict schedule. Just as there is no room for error on the field of play, games organisers have little room to slip up off it.

Accountants are a pivotal part of this team, delivering new benchmarks for service. Deloitte has supported the London 2012 Olympic Games for nearly a decade. The firm has delivered more than 200 advisory projects to date, which is a record in terms of the sheer volume and diversity of support a firm has ever provided to a major sports event. The main service areas have been in programme management, tax, technology, procurement, human resources management, operational readiness and legacy.

“It’s difficult to summarise, we’ve done so much, but at the last count we have provided over 560,000 hours of support to the Games so far, and we estimate it will be 750,000 hours by the time we reach the end of the Games,” says London 2012 programme director for Deloitte Sally Ormiston.

Cradle to graveDeloitte’s involvement in the London games began nearly a decade ago when the firm provided financial and strategic advice to the London Development Agency and London Bid Company.

Deloitte audit partner Neil Wood was sec-onded to the Bid Company. After the Interna-tional Olympic Committee awarded London the games in 2005, Wood’s secondment was extended and he went on to become CFO of the London Organising Committee for the Olympic & Paralympics Games (LOCOG).

“After the announcement that London had won, the obvious progression for us was to work with the government and the other

stakeholders in the transition from being a bid company – essentially a sales and market-ing organisation – into an organisation that can deliver a programme that’s as complex as the Games and a governance structure around that.”

Following work with the bid and during the transition phase, Deloitte was appointed professional services provider to LOCOG in 2007.

“When the organising committee was set up, there were just a handful of people,” Ormiston says. “By the time of the Games, there will be 200,000 employees delivering the Games. That includes 70,000 volun-teers, which LOCOG will have selected and trained. So it’s huge – the equivalent of set-

ting up and dismantling a FTSE 100 compa-ny in around eight years. As you are setting it up, you already think about closing it down, which really is a unique organisational chal-lenge.”

The firm helped LOCOG establish a programme management regime that has been aligned to the delivery of £6bn-plus of infrastructure development. More than 30 Deloitte professionals have been embed-ded in programme management roles across transport, catering, cleaning, waste manage-ment, procurement and security.

The two major areas of support, notes Ormiston, are procurement and technology strategy.

Technology support includes helping

iAB SPECiAL REPoRTInternational Accounting Bulletin dELoiTTE LoNdoN 2012

With only a few months to go until the opening ceremony, how are your nerves holding out? “It has to be said that London is in great shape. The International Olympic Committee was in town recently and what we’ve heard from them is that they are very, very pleased with London’s progress. I heard a few people say, I think half-seriously, that we could start tomorrow if we have to. There is ongoing work, the testing programme for example, the London Prepared test event series is ongoing and there’s still a lot of operational detail to be worked through but the infrastructure is there and the venues are there.

And the London Underground will run efficiently?“Transport for London is asking businesses in London to reduce their demand on the transport system by 30% over Games time to help manage demand so if that happens and people use the information provided to help to manage their journeys then everything should be fine.

Are you aware of any accountants who will be competing at the London olympics from deloitte or elsewhere?“We’ve got one or two within Deloitte – I’m not going to name them, but I’m sure there must be. We’ve got someone from our Swiss Practice in our Enterprise Risk Services department who is an athletics hopeful for London 2012 and I’m sure there must be other accountants competing.

Will there be any gold medals?“We certainly would like to think so, not necessarily employees from Deloitte, but we’ve supported the Talented Athlete Scholarship Scheme for disabled athletes and many of those have great medal potential. I am very excited about the Paralympics – it is inspirational.

Has deloitte played a significant role in Paralympics? “Yes, the way that LOCOG has approached the Olympics and Paralympics is really to manage them as one integrated programme, which is quite unique. So yes, we are as involved in the Paralympics as we are in Olympics. Our involvement goes beyond our relationship with LOCOG and actually predated it – we made a significant investment in disability sport.

Which events are you most looking forward to at the games? “I was very lucky and managed to get a couple of tickets for the athletics in the public ballot, so I’m looking forward to that. For the Paralympics, my first choice would be the track cycling. <

60 seconds with Sally Ormiston

LOCOG establish its technology function by advising on strategy, budgeting and the IT gov-ernance model. The firm also helped LOCOG place social media at the heart of its communi-cation strategy and establish robust IT security policies. Deloitte has had more than 20 secon-dees carrying out full-time technology support roles.

Deloitte also helped to establish LOCOG’s procurement function and in doing so worked with 100 people, 13 departments and 80 func-tional areas. The firm supported the design, build and implementation of LOCOG’s pro-curement governance model, which has formed the blueprint for procurement and passed on to the organisers of the Rio de Janeiro 2016 Olym-pic and Paralympic Games. Deloitte helped LOCOG procure about £700m of goods and

services in sports, catering, venues, transport and technology.

“Procurement has been a huge area that we have worked in and one of the most interest-ing challenges down to the sheer scale, and complexity due to the variety of things that you need to buy to host the games,” Ormiston explains.

“Just to give some idea of the scale and com-plexity and how novel it is as a programme, one of the things that the team has been involved in procuring is 55 horses for the modern pen-tathlon. All the horses need to be of a similar ability, probably the most unique procurement challenge we’ve ever seen. Also required are 1.8m pieces of sporting equipment, 10,000 cer-emonial flags, 5,000 bouquets of flowers for the medal ceremonies and 14m meals.”

Deloitte has also provided more traditional professional services, such as tax support. Aside from minimising LOCOG’s tax risks and administrative burden, Deloitte has carried out tax planning and compliance advice, including employee benefits advice for the LOCOG team and 70,000 Olympic & Paralympic volunteers.

Deloitte Drivers Jonas, which provides real estate consulting, is project managing a number of the iconic temporary venues including Horse-guards Parade for the beach volleyball, Green-wich park for the equestrian events, Hyde Park

www.InternationalAccountingBulletin.com6 y April 2012

19 days

26 sports

34 venues

92 ball pumps

205 nations

302 events

£5bn – worth of Games-related contracts won by more than 1,500 UK companies

68% – percentage of these companies that are SMEs

98% – percentage of companies that are UK-based

75,000 – business opportunities expected to be created

75,000+ – companies registered on CompeteFor

<oLyMPiCS ARE BiG BUSiNESS

www.InternationalAccountingBulletin.com April 2012 y 7

for the triathlon and open water swimming, The Mall, which will see the finish line for a number of road events including the marathon, and the Lee Valley White Water Centre which will host the canoe slalom.

What’s in it for them?The main value of being involved in a major sports event is the impact it has on its workforce. The firm has not established an Olympic services department as such, but it has seconded more than 130 staff to LOCOG, and involved more than 800 people in their Olympic and Paralympic programme.

“Internally, in the firm this is something that has been really engaging for our people – the sheer level of interest and commitment around the Games has been astonishing,” Ormiston says. “Around 136 individuals have been seconded to LOCOG and we’ve had over 1,000 applications for those roles.

“From a recruitment perspective, it’s been fan-tastic. We haven’t recruited specialists into the firm specifically to deliver services to the Games, but it has definitely helped us out there in a com-petitive recruitment market to differentiate our-selves. The look on graduates’ faces, for example, when we recruit from campus and say, ‘you have the chance to work on the Games’ – the impact that has is huge.”

It’s not just graduates that are being wowed by the scale and diversity of Deloitte’s Olympic programme.

“We can use it as a really powerful platform to show what we can do, that if we can deliver these services in such a unique and complicated environment, we can probably help your business with the challenges it is facing,” Ormiston says.

With 80 days to go until the opening ceremony, Ormiston is confident the London 2012 Olympic and Paralympic Games are well on track.

“We’ll have 57 Deloitte people who will have roles at games time and they work in all different parts of the Olympic and Paralympic operation.

“We will have people in venues, people on the park, people in the main technology operation centre, within the Athlete’s Village and they will have full operational roles.

“We will also be involved in helping LOCOG to close down afterwards – to dissolve the organi-sation after the event, making sure that all the assets are disposed of appropriately.”

As the Games are being held in a poor socioec-onomic part of East London, the regeneration of Stratford is important to the lasting success of the London 2012 Olympic and Paralympic Games.

The blue riband men’s 100m sprint final may only last 9.5 seconds but Deloitte will be advising games organisers on ways to ensure the legacy of the 30th Olympiad lasts a lifetime. <

19 days

26 sports

34 venues

92 ball pumps

205 nations

302 events

10.5k athletes

20k media

65k towels

70k volunteers

7.6m tickets

14m meals


FEATURE International Accounting BulletinNoN-AUdiT SERviCES

A question of perceptionDoes a conflict of interest occur when a firm provides non-audit services to a company it is auditing? The Big Four maintain auditor independence is robust enough while regulators and investors would like non-audit services to audit clients banned. Nick Huber weighs up both sides of the argument

A proposal by the European Commis-sion to ban large audit firms from providing consultancy services to their audit clients has surprised and

alarmed Big Four accountants and reignited the long-running debate about whether non-audit services create conflicts of interest.

The commission’s proposal on non-audit services – defined as services “unrelated” to audit ranging from advice on tax and general management to the design and implementa-tion of IT systems – is part of a plan to tight-en regulation of the European audit industry after the 2008 financial crisis.

Large audit firms would have to separate audit activities from non-audit services and clients would have to change audit firms every six years (with some exceptions) under the commission’s plan.

Announcing the regulatory shake-up, EC Internal Market and Services Commissioner Michel Barnier said investor confidence in audit had been “shaken” by the financial cri-sis and new regulation was needed to restore confidence.

The commission said its proposals would eliminate conflicts of interest, ensure auditor independence and help improve competition for audit services in an “overly concentrat-ed” market.

The debate over non-audit services has been running for at least a decade. After the Enron scandal of 2002, the US passed the Sarbanes-Oxley Act, which severely restricts the non-audit services accountants can pro-vide to audit clients. Similar measures have been adopted in many other countries.

Most of the Big Four accounting firms sold their consultancy businesses in the wake of Enron, which helped cause the collapse of Arthur Andersen. Since then, however, the big firms have rebuilt their advisory services.

Conflict of interest?The fees generated from non-audit services can be much more lucrative than those from auditing, raising concerns that they could undermine auditor’s independence and cre-ate a conflict of interest. In addition, auditors scrutinising a client’s accounts may be reluc-tant to question consultancy work done by

their colleagues, some experts warn.Richard Murphy, director of Tax Research

UK, says non-audit services “absolutely and emphatically” create a conflict of interest for auditors, undermining their independence.

“[If] an accounting firm has helped a com-pany structure its tax and advised on merg-ers and acquisitions, which have impacted on management decisions, how can an auditor [working for the same accountant] say to the company board that the advice they took on tax planning from ‘my firm’ was wrong.”

But if the conflicts of interest are so obvi-ous why are there so few (if any) examples in the public domain?

Murphy says that conflicts of interest would only be highlighted if an audit firm is sued by a client. This type of litigation is rare, though, meaning that the problem of audi-tor independence being undermined is “being swept under a rather convenient carpet”.

Why have company boards shown little support for a ban on audit firms selling consulting services. One reason for compa-nies unwavering support of the audit indus-try, according to Murphy is that company boards use accounting firms to advise them

on tax avoidance schemes which can reduce the amount companies pay in tax. This can increase profits and trigger bonus payments for directors for remuneration schemes linked to the value of shares.

Despite little evidence to show that non-audit services undermine auditors’ indepen-dence there is a perception that relying on non-audit services may be undermining audit firms’ professional judgement.

“The perception is out there and it isn’t going to go away,” says Stella Fearnely, pro-fessor in accounting at Bournemouth Uni-versity. “My view is that it’s better for audit firms not to provide non-audit services.”

investor concernsIn the UK, non-audit services are not a hot topic, but some shareholder groups believe current rules need tightening.

Pirc, a UK shareholder advisory body, wrote in a policy document last December: “It has been our long-standing position that there should be a prohibition on the provi-sion of non-audit work by the auditing firm as we consider that this creates a conflict of interest.”


iAB AWARdS FEATUREInternational Accounting Bulletin NoN-AUdiT SERviCES

“In practice we recommend that share-holders oppose the reappointment of audi-tors where the fees earned from non-audit work become financially significant. In addi-tion we believe that firms that act as auditors should ultimately become audit-only provid-ers.”

Pirc encourages its clients to use their right to vote on the re-election of audit firms to challenge high non-audit fees.

Michael McKersie, assistant director of capital markets at the Association of Brit-ish Insurers, one of the UK’s most influential shareholder groups, says some consulting services that accounting firms provide to audit clients – for example, advice on direc-tors’ pay, company strategy and internal con-trols (methods and procedures to help com-panies operate efficiently and reduce the risk of fraud) – are likely to create a conflict of interest, potentially to undermining auditors’ independence.

“If the consulting work relates to anything that the same audit firm relies on when doing their audit of their client there is an obvious conflict of interest,” McKersie says. “It can also make the relationship between the audi-tor and client too cosy and make the manage-ment too reliant on their auditor.”

McKersie reckons that restrictions on non-audit services in the UK, overseen by the Auditing Practices Board, are effective, but adds there is potential to improve European rules on non-audit services that can be pro-vided to audit clients.

He says the European Commission’s pro-posal to require big accounting firms to split into separate audit and consulting firms hasn’t been “properly justified”. Auditors with experience in other aspects of finance and business, such as tax and pensions, can draw on their knowledge to give audit clients a better service, he adds.

Robust regulationThe big accounting firms argue that current rules and guidelines on non-audit services are robust enough to avoid conflicts of interest.

There is certainly no shortage of regula-tions on non-audit services, including the Securities and Exchange Commission in the US; the UK’s Auditing Practices Board, which is part of the Financial Reporting Council; and the International Federation of Accoun-tants, a global organisation that helps to develop ethical guidelines for accountants.

Pauline Wallace, head of public policy and regulatory affairs at PwC – and one of the profession’s most respected commentators – says: “None of us do [non-audit services to audit clients] that will create a conflict of interest. In the UK, it’s the [client’s] audit committee that decides whether an account-

ing firm can provide consultancy services to an audit client.”

Wallace adds that there is “confusion” over the nature of non-audit services accounting firms provide to audit clients.

“Most of our non-audit services are pro-vided to non-audit clients, so to split off the business makes no sense,” she says.

As well as auditors adhering to strict regu-lations and ethical codes, company audit committees are required to scrutinise con-sultancy services accountants provided to audit clients, which helps to maintain ethical standards, big accounting firms argue.

“We pride ourselves on our independ-ence,” a KPMG spokesman says. “Audit committees regularly review audit arrange-ments and firms have to compete very hard against each other.”

Accounting firms who sell providing con-sulting services can “deepen their under-standing” of audit clients, which improves the quality of the audit, the spokesman says.

Banning non-audit services would split accounting firms and make auditing less attractive as a career – potentially damaging the quality of audits, the spokesman adds.

Fees from consultancy services can be far more lucrative than audit fees. How reli-ant are the big firms on non-audit services to audit clients? Revenues from non-audit services vary and some firms don’t disclose how much money they make from non-audit services to audit clients, making it hard to get a clear picture of firms’ reliance on non-audit services by service and region.

Robert Franchini, director of independ-ence at Europe, Middle East India and Africa at Ernst & Young, says that in the past 10 years E&Y’s revenues from non-audit ser-vices have decreased.

There have been two main reasons for this decline, Franchini says: an increase in regula-tions restricting the type of services account-ants can sell to audit clients and more scruti-

ny of non-audit services by audit committees on company boards.

“Many audit committees are taking a more critical view of auditor independence,” Fran-chini says. “This may involve establishing guidelines but more commonly it means that are tending to evaluate each service more critically than in the past on a case by case basis.”

Franchini says that some organisations have put a “lot of ring fences around the type of consultancy services that can be provided to [audit clients]”.

Not all big accounting firms oppose new regulation on non-audit services, though. Edward Nusbaum, chief executive officer at Grant Thornton International says that Barnier’s proposals to restrict the non-audit services accountants can provide to audit cli-ents who are large listed companies is some-thing that Grant Thornton “could live with” and may “add to the credibility” of the audit industry.

He adds, however, that Grant Thornton has some concerns about how it will be implemented.

Although the Barnier proposals on restrict-ing non-audit services would mean account-ants lose consulting work, much of this loss could be offset by picking up work from rival auditors who are forced to give up consulting work for their audit clients, Nusbaum adds.

There is little hard evidence that provid-ing non-audit services to audit client creates conflicts of interest or undermines auditor independence. Accounting firms can also point to numerous regulations and ethical guidelines that already restrict the type of consulting services they can offer to compa-nies they audit.

However, there is still a lingering percep-tion that selling consulting services to audit clients creates ethical problems. This percep-tion is bad for the reputation for the audit industry and needs to be addressed. Some investors are concerned and want tougher regulations on non-audit services.

Big Four claims that a ban on non-audit services would result in poorer quality audit is largely speculative.

The argument that restrictions on non-audit services will make audit a less attrac-tive career for graduates is not convincing either. Audit roles are fairly well paid and offer a good long-term career path. Over-lap between auditing and consultancy skills means that experience in audit will continue to be valued whatever the restrictions on non-audit services.

A ban on non-audit services might even boost the reputation of an industry which should take the high ground on ethical mat-ters and corporate governance. <

‘None of us do [non-audit services to audit clients] that will create a conflict of interest. in the UK, it’s the [client’s] audit committee that decides whether an accounting firm can provide consultancy services to an audit client’

Pauline Wallace, PwC

www.InternationalAccountingBulletin.com10 y April 2012

iAB WEBiNAR International Accounting BulletinSECRETS oF SUCCESS

Sir David Tweedie entered the account-ing profession ‘by accident’ but has played a crucial role in the movement behind global accounting standards.

The winner of IAB’s Lifetime Achievement Award shares his views on the profession at the recent webinar Secrets of Success.

IAB: How did you sell iFRS to the world?David Tweedie: We were lucky, because the EC, very soon after we started, decided that European listed companies should use IFRS and you can understand that. You can’t have a single market with 25 different rules of accounting, which is what existed before.

So, that was on the way, and Australia and New Zealand adopted them within a month or two. Suddenly, Asia was starting to look at them and it started to spread from there.

IAB: do you believe the US and Japan will embrace iFRS in the near future? DT: I think with the key alliance with SEC, the answer to your question will be a messy ‘yes’. If the US doesn’t say ‘yes’, I don’t think Japan will come in – they will wait for the US. And if they don’t come in, then you’ll find China, which is 98% there, will pull back. That means India won’t come in either.

And then you can find Europe says ‘well, if they are not coming in, we want a few chang-

es made’. So, the whole thing can be set back by 10 years. This is an crucial phase for IFRS and the global accounting experiment.

IAB: did you have any regrets when you left the iASB?DT: Yes, there were things that I didn’t get done. There are certain standards that I really hate. I hate the income tax standard. I think associate company should be abolished.

The other thing that really upset me was the fact that because of the crisis it took long-er to complete the convergence programme in the US. I think had the crisis not happened, IFRS would have been muted and coming into the US in the next year or two.

IAB: What do you think about the role of the auditor?DT: I think when you look at the role of the auditor, what is the auditor there for? He’s there to protect the investors, he’s not there to be a trusted adviser to the company and that’s why you have to look very carefully at non-audit activities that he is doing.

And then when you look at the other issues, how long is the average audit’s term? In the UK it’s about 48 years, in the US it is about 24 to 28 years. The question then is do we need audit committees to start saying we will look at tendering every now and then –

let’s say every 15 to 20 years – and we expect we will probably just change the auditor and if we don’t, we will tell you why we didn’t think it was a good idea.

I believe there are other things that can be done by the audit committee. They can look at what estimates were really critical to the accounts and what was the outcome. That sort of thing needs to be in the public domain and we can decide if the auditor should do it. The audit report is full of things that describe what auditors are not responsible for and what management is. I would like to see more critical issues, meaningful reporting. <

Tweedie calls for stronger reporting & independenceLiFETiME ACHiEvER

Embedding sustainability is key

SUSTAiNABLE FiRM

MI to expand association model

ToP ASSoCiATioN

KPMG reports annual growth of 300% in sustainability services over the past two years, partially fuelled by an increase in demand from mid-sized companies, KPMG Europe head of sustain-ability Vincent Neate says.

The IAB Sustainable Firm of the Year believes energy effi-ciency, climate finance and the contribution business makes to society are increasingly impor-tant issues for business, but the market has yet to fully realise the importance of sustainability.

Leading by example, KPMG has reduced its global carbon footprint by more than 29% since 2007.

“We always recommend cli-ents think in a two to three year

time horizon from adopting a sustainability strategy before reporting it. Otherwise what happens is that people tend to report what is happening already and force themselves into a posi-tion where they are not able to report any significant success,” Neate says.

“In the last five years or so we have seen a great increase in organisations where the individ-ual who is ultimately responsible for reporting is actually on the board, and while the role within that board is not currently an operational role they are some-one who has acted in an opera-tional role... so, it’s very much about companies embedding it in the business.” <

Morison International (MI) plans to build its representation in East-ern Europe and the Nordic region while improving industry-focused services, according to CEO Liza Robbins.

Robbins said the association will look to develop “deeper pro-cesses for industry sector knowl-edge sharing”.

“We are mapping our mem-bers’ experiences and bringing connected members together,” Robbins said.

MI won IAB’s Rising Star and Association of the Year Awards. Despite a recent push for some associations to become networks, Robbins believes the association model will survive as long as reg-ulation permits it.

“For MI, the key benefit of the association model is that our members can adopt work prac-tises, procedures and methodol-ogy that are not determined by the centre, but are determined by the individual firms as to what is suitable to their circumstance and that meet the quality require-ments of local and international standards,” she said.

“The key concern is over-coming the marketing of the network position on quality. An association is committed to the same quality… its members must comply with international and local accounting and audit-ing standards, albeit they are free to decide how to go about such compliance.” <

n Sir David Tweedie


Ask most Swedish managing partners to describe how their firm performed in the past fiscal year and the most likely response you will receive is

‘lagom’ – the right amount.Another term, ‘jantelagen’, describes the

infamous Swedish mentality of never stand-ing out, sentiments that would not be out of place in this year’s survey report.

It’s been one of those years for Sweden’s accounting firms. Solid economic growth punctuated by business lines that are ticking along quite nicely, but nothing remarkable to write home about. It’s a case of business-as-usual.co.se.

A couple of the networks, Baker Tilly Sverige and Moore Stephens International, posted eye-catching double-digit growth although this is due to firm recruitment rath-er than organic success.

It could have been different for Swe-den’s audit firms. In 2009, the government was planning to increase the audit exemp-tion threshold for SMEs by a considerable amount, which would have allowed 1,000s of companies to opt out of audit. Thankfully, for Swedish firms, the threshold introduced in late 2010 was much lower than anticipat-ed and the audit client pool remained intact – for now, at least.

In the past fiscal year, the revenue of

accounting networks increased by 7% to SEK13.7bn ($2bn) in fees. This includes the Big Four and the leading mid-tier groups.

Ninety-five percent of firms the Inter-national Accounting Bulletin surveys are members of accounting networks, groups of individual firms that operate together on a national basis.

The Swedish market is made up of 1,000s of smaller practices dotted around the coun-try. Even the Big Four operate as a national firm with offices all over the country, rather than centralised super-offices that are based in major financial hubs.

For example, the largest firm, PwC, has 125 offices in Sweden, which indicates it is still important for the largest firms to provide localised services.

Network revenue grew by 7%, with the Big Four growing by an average of 4%.

BDO Sweden increased its revenue by 7% to SEK408.5m in the year to 31 August 2011. Despite the growth achieved in the past fiscal the result was down 11% since the fiscal 2008. BDO Sweden is one of the few firms that has decreased revenue since IAB’s last Sweden survey in 2009. This is a result of moving to a single national firm coverage and letting go some of the firms that were previously part of the network structure, according to managing partner Jörgen Lövgren.

BDO’s loss has been quickly snapped up by a rival.

Baker Tilly Sweden, the fastest growing network over the past year, increased fee income by 95% due to the addition of new member firms.

Baker Tilly Sweden international contact partner Thomas Olofsson says 11 former BDO firms and a couple of others joined, increasing the total number of member firms to 31.

Olofsson says BDO was operating as a ‘franchise’ prior to the move to single cov-erage, which led to member firms having to decide to either buy shares in the new busi-ness or to continue on their own.

Among the Big Four, PwC retains top posi-tion with annual revenues of SEK4.4bn in the year to 30 June 2011. PwC is followed by

Ernst & Young (E&Y), earning SEK2.8bn. Both firms reported 6% growth.

The third largest firm, KPMG, grew by 8% to SEK2bn. The firm’s managing partner Helene Willberg expects to see more growth as the firm’s year end was at the end of April and accounts are about to be closed. Howev-er, a slow M&A market is expected to hinder

iAB CoUNTRy SURvEyInternational Accounting Bulletin SWEdEN

A year of ‘jantelagen’The Swedish accounting market has proven resilient despite regulation changes that exempt some SMEs from audit. Opportunities are arising from non-audit services while some firms are consolidating. Ana Gyorkos reports

n SWEdEN

At a glanceREvENUE

Most revenue: PwC, SEK4.4bnLeast revenue: HLB Sweden, SEK8.3mHighest growth: Baker Tilly Sverige, 95%Lowest growth: Crowe Horwath International, -14%

STAFF

Largest workforce: PwC, 3,443Smallest workforce: HLB Sweden, 12Most partners: PwC, 240Most professionals: PwC, 2,849Most admin staff: PwC, 354Most offices: PwC, 125

ECoNoMiC iNdiCAToRS

National GdP: SEK3.46trn ($513bn)National GdP growth: 4% (2011)GdP per capita (PPP) : 40,394 unitsinflation (CPi): 1.4%Unemployment rate: 7.5%Population: 9.45m

iAB SURvEy iNdiCAToRS

Revenue per employee: SEK1.24m ($183,938)Revenue per partner: SEK12.8m ($1.90m)Partner/workforce density: 9.7%Revenue proportion of GdP: 0.39%Staff per capita: 1 accountant in practice per 855 SwedesPartners per capita: 1 partner per 8,799 Swedes

Notes: Total revenue applies to IAB surveyed data only. Source: International Accounting Bulletin.

Audit and accountancy 73%

Tax 11%

Management consulting 5%

Other 11%

Source: International Accounting Bulletin

n SWEdENService line fee split




CoUNTRy SURvEy International Accounting BulletinSWEdEN

some of that growth.“When we did our business analysis for

the current fiscal we were not expecting transaction and restructuring to perform like this we didn’t expect that insecurity in the market place and the dried up financing,” she says.

“Insecurity is not healthy when it comes to the M&A market. We thought there’d be a better scenario but we believe that there is quite a substantial potential when the market recovers.”

Crowe Horwath lost a member firm in the past fiscal, which led to the network report-ing an 11% drop in fee income.

Among associations, Praxity is the leader of the pack with a 5% decrease in revenues to SEK291m.

Service line opportunitiesAudit and accounting services bring in 73% of fees for networks and associations in Sweden.

The audit exemption changes have not had the anticipated consequences as some of the clients that could have opted out under the new threshold have decided to keep their auditor.

In 2009, Swedish firm leaders told Inter-national Accounting Bulletin they feared changes to audit exemption rules for the country’s SMEs could shrink their client base. Sweden has more SMEs per 1,000 inhabitants than most European countries

and accounting firms of all sizes rely on this segment of the economy.

At consultation stage, the audit exemp-tion threshold was expected to be among the highest within the European Union, exclud-ing companies with net sales of SEK83m, total assets of SEK41.5m and 50 employees or less.

However, the exemption threshold put into place in November 2010 was lowered to turnover of SEK3m, balance sheet total 1.5m and three employees.

Willberg says the government reconsidered its initial proposal due to fears the quality of income-tax returns and financial statements would drop.

The lower threshold meant little change for Swedish accounting firms. Olofsson says that some clients have decided to stick to an audit due to the credit and financing market as banks still like to see audited financials of their creditors.

“When companies can choose if they want to have an audit or not, we have to look and see if we can offer them some other services instead, which will be more suitable and bet-ter for them,” he says.

Lövgren says the low amount of change following the new threshold might be down to it being the first year after the implemen-tation.

“The first year this has been fully imple-mented was 2011 and things might change as more years pass and more companies might

decide to opt out,” he says“This change in regulation has, however,

led to some fee pressure. From the fee point of view competition has been tougher on the audit side.”

Willberg says KPMG has not felt any effects of the change in audit threshold.

“It was a very good decision to review the threshold as it is important to make sure that the industry is providing services that are in demand, not by law. It was helpful to have a direct communication with the client and companies about what they really get out of an audit,” she says.

Firm leaders believe the threshold will be increased further by the government and that could signal consequences for the audit mar-ket.

“Today, about 70% of newly formed com-panies choose not to appoint an auditor,” Lövgren says. “And, in the next few years we are expecting to see the threshold increase, enabling even more companies to opt out of an audit. But we will see, this might happen in the next three to five years but nothing has been said for definite yet.”

Lövgren says BDO is receiving increased demand for sustainability accounting ser-vices such as assurance on sustainability reports.

“At the moment that demand is coming from bigger clients that are listed or owned by the state. I think in the future it is going to become more and more common for com-

n SWEdEN

networks - fee dAtA

Rank NameRevenue (SEKm)

Growth rate

Revenue split by service line (%)

year-end

Audit & accounting

Tax services

Management consulting

Corporate finance

Corporate recovery/

insolvency Litigation

support other

1 PwC* 4,439.0 6% 75 12 3 10 - - - Jun-30

2 Ernst & Young*(1) 2,881.7 6% 45 10 - - - - 45 Jun-11

3 KPMG* 1,991.8 5% 64 12 4 3 1 - 16 Apr-11

4 Deloitte* 1,373.0 8% 63 18 10 - - - 9 May-11

5 Grant Thornton Intl* 953.9 9% 70 15 9 4 - - 2 Apr-11

6 BDO* 408.5 7% 71 14 5 5 1 - 4 Aug-11

7 Baker Tilly Sverige* 319.0 95% 91 7 1 - - - 1 Jun-11

8 Mazars* 291.4 -5% 92 3 1 2 1 - 1 Aug-11

9 Moore Stephens Intl* 130.0 70% 86 4 5 4 1 - - Dec-11

10 Crowe Horwath Intl* 119.6 -14% 78 15 - 7 - - - Dec-11

11 Kreston International* 65.9 11% 50 14 28 5 - - 3 Oct-11

12 Nexia International* 60.9 32% 76 10 4 5 5 - - Jun-11

13 HLB Sweden* 8.3 5% 75 10 10 - - - 5 Aug-11

Total revenue/growth 13,043.0 7%

Notes: *Disclaimer = Only data from the exclusive member firms within the network is included. Data relating to correspondent and non-exclusive member firms is not included. (1) (1) Other includes certain assurance and non-audit services. Source: International Accounting Bulletin


panies to have sustainability accounting,” he says.

There has been a steady demand for tax services, such as international tax advice, which has grown in the past two years.

“This is partly a result of different coun-tries starting to look after their incomes. And, regulators and the tax authorities pri-oritising this area,” Willberg says.

BDO’s 7% growth in tax over the past fis-cal mirrors a rise in VAT services, transfer pricing and international tax.

“We are getting more referrals from main-ly European BDO member firms,” Lövgren says.

For Baker Tilly, tax services have grown slowly, but the network has recently added some tax firms that will help build the busi-ness.

Advisory services has been stale in the past fiscal, according to Willberg, who points out it is much more about winning market share than expanding.

This is particularly the case with M&A advisory work, which has slowed right down since the restructuring boom in 2008/09.

“We have a potential M&A on the agenda for our advisory practice. In audit it is more smaller acquisitions that we do, but within advisory we would look at something big-ger.”

Olofsson believes there are opportunities ahead for M&A work: “What we expect will start happening is that we will see an increase succession planning and that might lead to increased M&A work. Sweden had a huge population boom in the 40s and these busi-ness leaders are in the retiring phase now and they need to find some succession for their company, so there is a lot of M&As that are

going to happen within the next few years.”BDO has seen a slight contraction in man-

agement consulting due to the firm’s focus on the public and healthcare sectors.

“Additionally, corporate finance is a new service line for us and it has performed well and our intention is to expand it,” Lövgren says.

Moving onSweden had a strong economic recovery through mid-2011 but is now being hit by the ongoing global economic slowdown, according to the Organisation for Economic Co-operation and Development (OECD).

The OECD says Sweden is experiencing increased unemployment and private con-sumption that has been driving the recovery is dropping off.

However, this only a short-term setback and the Swedish economy is predicted to gather momentum in the next two years.

Firm leaders are more concerned about issues that directly affect the profession.

Lövgren is closely monitoring the increase in auditor liability suits.

“Audit has become very susceptible to this. This increase means our costs have gone up and we have to invest more money into risk management functions in order to minimise

iAB CoUNTRy SURvEyInternational Accounting Bulletin SWEdEN

n SWEdEN

AssocIAtIons - fee dAtA

Rank NameRevenue (SEKm)

Growth rate


year-end

Audit & accounting

Tax services


Corporate finance

Corporate recovery/


support other

1 Praxity* 291.4 -5% 92 3 1 2 1 - 1 n/a

2 INPACT International* 116.8 28% 78 8 4 1 - - 9 Dec-11

3 DFK International* 94.4 17% 84 5 11 - - - - Jun-11

4 GMN International* 51.1 11% 90 5 2 - - - 3 Aug-11

5 AGN International*(1) 51.0 4% 31 32 - - - - 37 Oct-11

6 IGAF Polaris* 35.9 - 75 10 10 - - - - May-11

7 MGI 30.3 16% - - - - - - - Jun-11

8 BKR International*(2) 12.0 0% 83 13 - 4 - - - Nov-11

Total revenue/growth 682.9 6%

Notes: *Disclaimer = Only data from the exclusive member firms within the association is included. Data relating to correspondent and non-exclusive member firms is not included. (1) AGN International member firm is Frejs Revisionsbyrå; (2) BKR International is represented by the firm Add & Subtract. Source: International Accounting Bulletin

n SWEdEN

NETWoRK or ASSoCiATioN FiRM AddiTioNS, MERGERS & ACQUiSiTioNS

Baker Tilly International Gained: Baker Tilly Asplunds (Ramsele, Sollefteå), Baker Tilly Fryken (Arvika, Sunne, Torsby), Baker Tilly Halmstad (Halmstad), Baker Tilly Malmö (Malmö, Lund), Baker Tilly Strömstad (Strömstad), Baker Tilly Sydost (Holmsjö, Karlshamn, Karlskrona, Lessebo, Sölvesborg, Växjö), Baker Tilly Trelleborg (Trelleborg), Baker Tilly Umeå (Umeå), Baker Tilly Ängelholm (Ängelholm), Baker Tilly Östra Värmland (Karlskoga, Kristinehamn) and Wint (Ekshärad, Göteborg, Hagfors, Karlstad, Mora, Munkfors, Stockholm, Växjö, Årjäng), Esset Revision ( Sundsvall, Upplands Väsby, Ånge, Örnsköldsvik), F Thorell Revision (Norrköping, Stockholm, Söderköping, Valdemarsvik, Åtvidaberg), Baker Tilly Helsingborg (Helsingborg)

BDO International Acquired: REK Revision in Uppsala (now BDO Uppsala)

Crowe Horwath International Gained: Uddevalla; Lost: Gothenburg

DFK International Gained: Stratego; Lost: Växjö

Grant Thornton International Acquired: Mekodent Företagskonsult (Stockholm), BDO Kristianstad (Kristianstad), Ulf Sundin Revisionsbyrå (Linköping), Acredo Norr (Umeå)

Mazars Merged: Andersson & Ström (Kristianstad)



CoUNTRy SURvEy International Accounting BulletinSWEdEN

n SWEdEN

AssocIAtIons - stAff tABle

Rank Name

Total staff Partners Professional staffAdministrative

staff offices

2011 2010 Growth 2011 2010 2011 2010 2011 2010 2011 2010

1 Praxity* 222 227 -2% 42 51 148 144 32 32 13 12

2 INPACT International* 139 108 - 27 - 9 - 103 - 15 -

3 DFK International* 100 72 39% 25 25 70 35 5 12 11 9

4 AGN International*(1) 47 45 4% 11 11 30 28 6 6 3 3

5 IGAF Polaris* 43 - - 8 - 32 - 3 - 2 -

6 MGI* 43 39 10% 9 9 24 20 10 10 5 5

7 GMN International* 41 40 35 9 9 27 26 5 5 1 1

8 BKR International*(2) 17 17 0% 2 2 14 14 1 1 1 1

Totals 652 548 7% 133 107 354 267 165 66 51 31

Notes: *Disclaimer = Only data from the exclusive member firms within the network is included. Data relating to correspondent and non-exclusive member firms is not included. (1) AGN International member firm is Frejs Revisionsbyrå; (2) BKR International is represented by the firm Add & Subtract. Source: International Accounting Bulletin

n SWEdEN

networks - stAff tABle

Rank Name


staff offices

2011 2010 Growth 2011 2010 2011 2010 2011 2010 2011 2010

1 PwC* 3,443 3,402 1% 240 241 2,849 2,795 354 366 125 125

2 Ernst & Young*(1) 1,948 1,901 2% 167 168 1,567 1,524 214 209 62 62

3 KPMG* 1,616 1,503 8% 89 84 1,317 1,221 210 198 60 60

4 Deloitte*(1) 1,100 1,067 3% 77 74 902 876 121 117 30 30

5 Grant Thornton International* 905 842 7% 130 128 674 623 101 91 25 25

6 BDO* 425 386 10% 56 59 339 298 30 29 18 20

7 Baker Tilly Sverige* 395 150 163% 71 26 299 116 25 8 51 22

8 Mazars* 222 227 -2% 42 51 148 144 32 32 13 12

9 Crowe Horwath Sweden* 115 130 -12% 20 28 85 92 10 10 8 8

10 Moore Stephens International* 108 91 19% 22 16 77 70 9 5 8 7

11 Nexia International* 66 46 43% 13 11 48 31 5 4 3 2

12 Kreston International* 47 47 0% 12 12 30 30 5 5 2 2

13 HLB Sweden* 12 11 9% 2 1 10 10 - - 2 2

Totals 10,402 9,803 6% 941 899 8,345 7,830 1,116 1,074 407 377

Notes: *Disclaimer = Only data from the exclusive member firms within the network is included. Data relating to correspondent and non-exclusive member firms is not included. (1) Deloitte total staff figure for 2011 has been provided by the firm. 2010 total and partners have been estimated by IAB. Source: International Accounting Bulletin

our risk,” he explains.Swedish accounting leaders are also moni-

toring proposed audit reforms by the Euro-pean Commission being debated in EU par-liament.

Willberg says the proposed EC audit mar-ket reforms can have severe consequences on the market.

“It’s hard to foresee what is going to come out especially as all the countries have their say,” she says.

Lövgren is disappointed that some of the

proposals in EC Internal Markets Commis-sioner Michel Barnier’s initial document were watered down in the final draft.

“The fact of the joint audit proposal being removed is not good,” he says. “I don’t see this final proposal making any radical chang-es to the profession.

“As I understand, the main focus of the paper was the concentration of the audit market and I think any final proposals will be watered down even further and won’t have any effect on the market.”

An encouraging economic forecast is good news for the country’s SMEs and their audi-tors.

The major challenge that could hinder accounting firm growth is an increase in audit exemption threshold. Such action would signal severe price undercutting and lead to testing times for the nation’s mid-tier players.

A trend that is likely to continue is the transition from networks of smaller firms into national firms. <


double-digit market growth signals another strong year for Chinese firms. in spite of regulatory challenges, david Hayes and Ana Gyorkos find plenty of optimism about the future

iAB CoUNTRy SURvEyInternational Accounting Bulletin CHiNA

An Eastern powerhouse

China is developing into an Eastern powerhouse of accounting. China’s firms have enjoyed another year of unrivalled double-digit growth in

which the major problem has been attracting enough qualified staff to cater to demand.

The market’s insatiable appetite, coupled with the government’s unflinching ambition to place domestic firms on the global map, is accelerating the development of a profession that is only smaller in size to the US and UK, the latter not for long.

Opportunities are aplenty in audit, while tax and advisory services are finally starting to mature in the communist country.

The major challenges facing firms have been structural reforms for firms to adopt LLPs, licensing issues and a shortage of tal-ent. But to suggest these are major problems would fly in the face of any rational anlaysis of Chinese firm perfomance.

In the past fiscal, China’s 20 largest firms grew by an average 19%.

This year, the International Accounting Bulletin split organisations into three tables – Greater China networks, Greater China associations and the top 20 Mainland China firms.

PwC is the market leader of Mainland

China and Greater China, according to offi-cial CICPA figures and reliable sources in the region. The Big Four never publicly disclose financial information in China, so all of their revenue in our tables are estimates.

PwC’s estimated annual revenue in Main-land China is CNY3.49bn and in Greater China, which includes Hong Kong and Tai-wan, it is CNY4.23bn.

Deloitte, with estimated revenue CNY3.71bn, is the second largest firm, fol-lowed by Ernst & Young, with CNY3.05bn, and KPMG, with CNY2.66bn.

BDO is the fifth largest network in Great-er China, reporting combined revenue of CNY1.91bn in the year to 31 December 2011. On the Mainland, BDO has the sixth largest firm Shu Lun Pan, with revenue of CNY924m, and the 13th largest firm BDO China Dahua, with CNY516m.

RSM International reported 15% growth to CNY1.18bn in Greater China, retaining its position as the sixth largest network in the region.

RSM only has a single firm on the Main-land with revenue of CNY981.5m, which makes it the largest Mainland firm outside of the Big Four. RSM China partner Zhang Lianqi says growth was organic, down to

n GREATER CHiNA

At a glance

Most revenue: PwC, CNY 3.73bn(e) Least revenue: UC&CS Asia, CNY3.2mHighest growth: Praxity, 352%Lowest growth: Alliot Group, -27%

Largest workforce: PwC, 14,000Smallest workforce: UC&CS Asia, 4Most partners: PwC, 620Most offices: PwC, 26

GdP: CNY15.5trn ($2.4trn)GdP growth: 9.2% (2011)GdP per capita (PPP): 8,382 unitsinflation (CPi): 5.4%Current Account Balance: 2.8% of GDP(e)Unemployment rate: 4%Population: 1.35bn

Revenue per employee: CNY305,364 ($48,404)Revenue per partner: CNY7.45m ($1.18m)Partner density: 4.1%Staff density of population: 1 accountant in practice per 16,206 Chinese

Notes: Revenue and staff figures apply to IAB surveyed data only, this includes firms that belong to global networks and

associations. Source: International Accounting Bulletin, IMF.

iAB SURvEy iNdiCAToRS

ECoNoMiC iNdiCAToRS

STAFF

REvENUE


CoUNTRy SURvEy International Accounting BulletinCHiNA

China’s rapidly growing economy and strong demand for restructuring, IPO and internal control services.

Mid-tier networks in Greater China have grown by an average of 25% in the past fis-cal. China is one of the few markets in the world that is not heavily dominated by the Big Four and the mid-tier contribute 41% of overall fees. Globally, mid-tier networks earn 30% of fees while in the US it is only 19%.

Part of the reason why the mid-tier has a larger marketshare in China is down to gov-ernment plans to consolidate large domestic firms. This has led to a raft of mergers within China and firm additions for global networks and associations.

Grant Thornton China merged with local firm Ascenda CPA, which increased Grant Thornton’s revenue by 80% in Mainland China to CNY699m.

Grant Thornton China vice-chairman Xia Zhidong says Ascenda CPA has a strong base of Shanghai-listed audit clients and the merg-er places it among the 10 largest Mainland firms.

One of China’s large domestic firms, Shine Wing, joined Praxity in March 2011. The addition boosted the association’s revenues by 325%, making it the highest earning asso-

ciation in Greater China with CNY915m.

Moving to LLPChina has had a wave of regulatory changes as the Ministry of Finance (MoF) firms its grip on the profession and pushes domestic firms to grow internationally.

Licensing is the chief concern for the Big Four. This year, Chinese authorities will need to deal with E&Y and KPMG’s operating licences, which are due to expire, and it is unlcear what new requirements, if any, will be placed on renewals.

Two decades ago, the Chinese government invited the then Big Six to operate in the country. The firms applied for joint venture licences that enabled them to practice in co-operation with local Chinese partners.

KPMG, Deloitte and E&Y received a 20-year licence while PwC was awarded a 25-year joint venture licence.

KPMG and E&Y’s licence expires at the end of 2012, Deloitte’s in early 2013 and PwC’s in 2018.

PwC China lead partner for public policy and regulatory affairs David Wu says PwC is monitoring the KPMG and E&Y decision with interest.

“The Chinese government is in discus-sion with other Big Four accounting firms - Deloitte, KPMG and E&Y- and is asking them to convert to LLP enterprises. There will be a reform of accountants’ liability,” Wu says.

“The government has said its objective is to localise Big Four firms as soon as possible so local CPA talent can take leadership in those accounting firms. It’s not the case that China is closing the doors on the Big Four.”

Restructuring from a LLC to a LLP is tak-ing place across the profession. BDO has made the change recently and the network’s China services director Katherine Liu says the transition is required if the profession in the country is to progress.

“In a LLC structure the maximum num-ber of shareholders would be 50. Obviously as the accounting profession in China is to progress, that structure limits the potential of absorbing more partners and providing equitable structure in an accounting firm,” she says.

The change to an LLP structure carries cost implications for firms and imposes the improvement of quality control procedures.

One of the reasons for the MoF’s push for an LLP restructure is to grow firms from large domestic entities into international firms.

“I wouldn’t say that definitely in five years time Chinese accounting firms are going to be all very international but I think the essential homework needs to be done for the account-ing firms to continue to integrate because

there is a lot of consolidation taking place at the moment and to fully integrate merged accounting firms will take time,” Liu says.

“I think you need to stabilise and build the core strength from the integration rather than just purely capturing more partners and offices.”

Baker Tilly Hong Kong managing partner Andrew Ross says China won’t be able to grow global accounting networks in the next five years as it is difficult to build up an inter-national practice inside one country.

“The Chinese would like to see their domestic firms become more international, but it’s difficult for those firms to go out and acquire accounting firms in other countries - that’s a very long term project. Mind you the Chinese do things very long term.”

Clash of the regulatorsAuditors of Chinese companies listened on the US stock exchange have found themselves in a vulnerable position caught between two regulatory jurisdictions over the past year.

Deloitte is in the midst of a legal dispute between US and Chinese authorities. The US Securities and Exchange Commission (SEC) is attempting to force Deloitte’s Chinese firm to pass over audit documentation related to former client Longtop Financial Technolo-gies, which became SEC-listed with a reverse takeover. Deloitte has been blocked from handing over documents by Chinese authori-ties and the case is deadlocked.

In fear of another Longtop scenario, Deloitte quit as the auditor of several other US-listed Chinese companies and so did other Big Four firms.

Wu believes recent cases reveal the problem of reverse takeovers.

“If you want to go to the US to get listed, you need to get an exit visa from the Chinese regulator and then you get an entry visa into the capital markets in the US. Those who go

n MAiNLANd CHiNA

Top 20 firms

Rank Firm Revenue ($m) Growth

1 PwC(e) 3,492.0 18%

2 Deloitte(e) 3,068.0 18%

3 Ernst & Young(e) 2,471.0 18%

4 KPMG(e) 2,197.0 18%

5 RSM China 981.5 17%

6 Shu Lun Pan(1) 924.1 8%

7 Crowe Horwath China

880.0 26%

8 Baker Tilly China 710.7 38%

9 Grant Thornton China(2)

698.8 80%

10 Pan China(e) 689.0 6%

11 Shine Wing(3) 650.0 36%

12 PKF Daxin(4) 639.6 23%

13 BDO China Dahua(1) 516.3 1%

14 Reanda 364.5 1%

15 Wu Zhou Song De(5) 328.8 68%

Notes: (e) IAB estimate; Mainland China revenue only. (1) Members of BDO China. The two BDO firms are separate legal entities but operate under the national association firm BDO China Shu Lun CPA Management Company; (2) The increase in revenue from 2010 is due to the acquisition of Ascenda CPAs; (3) Member of Praxity; (4) PKF Daxin 2010 revenue are an IAB estimate; (5) Member of HLB International. Source: International Accounting Bulletin

PwC, 17%

E&Y, 12%

n GREATER CHiNAAccounting firms’ market share

Mid-tier, 45% KPMG, 11%

Deloitte, 15%





n GREATER CHiNA

networks - fee dAtA

Rank NameRevenue (CNym)

Growth rate


year-end

Audit & Accounting

Tax services


Corporate finance

Corporate recovery/


support other

1 PwC*(e) 4,230.0 20% - - - - - - - u/a

2 Deloitte*(e) 3,712.8 20% - - - - - - - u/a

3 Ernst & Young*(e) 3,050.2 20% - - - - - - - u/a

4 KPMG*(e) 2,658.0 20% - - - - - - - u/a

5 BDO International* 1,908.2 14% 85 6 - - - - 9 Dec-11

6 RSM International* 1,180.6 15% 85 6 5 1 1 - 2 Dec-11

7 Crowe Horwath International* 1,082.3 5% 60 5 4 - - - 31 Dec-11

8 PKF International* 859.9 22% 63 4 23 - - - 10 Jun-11

9 Baker Tilly International* 830.9 32% 74 4 5 - - - 17 Dec-11

10 Grant Thornton International* 771.9 84% 74 13 7 - - - 6 Dec-11

11 Kreston International* 727.8 50% 48 8 8 5 1 - 30 Oct-11

12 HLB International* 607.0 89% 45 11 12 2 - - 30 Dec-11

13 Nexia International* 440.0 9% 62 21 11 1 - - 5 Jun-11

14 Reanda International* 396.0 1% 83 3 5 - - - 9 Dec-11

15 Moore Stephens International*

325.5 40% 91 5 1 1 - - 2 Dec-11

16 Mazars* 228.8 20% 75 12 - - 2 8 3 Aug-11

17 Russell Bedford International*(1)

70.0 27% - - - - - - - Jun-11


Notes: Greater China revenue includes Hong Kong and Taiwan. (e) IAB estimate. *Disclaimer = Only data from the exclusive member firms within the network is included. Data relating to correspondent and non-exclusive member firms is not included.


n GREATER CHiNA

AssocIAtIons - fee dAtA

Rank NameRevenue (CNym)

Growth rate


year-end

Audit & Accounting

Tax services


Corporate finance

Corporate recovery/


support other

1 Praxity* 915.8 352% 82 6 2 1 1 2 6 n/a

2 Morison International* 206.1 9% 78 5 8 1 - 3 5 Dec-11

3 IGAF Polaris* 176.9 - 59 21 10 - - - 10 May-11

4 MSI Global Alliance* 94.0 -1% 60 30 5 2 3 - - Oct-11

5 INPACT Asia-Pacific* 74.5 -3% 63 13 9 2 6 - 7 Dec-11

6 Integra International* 73.1 14% 45 20 30 5 - - - Dec-11

7 KS International* 65.8 -5% 40 16 21 - 1 - 22 Dec-11

8 DFK International* 53.5 -11% 85 4 9 1 - - 1 Sep-10

9 MGI* 36.5 -22% - - - - - - - Jun-30

10 IAPA* 31.2 5% 88 3 6 3 - - - n/a

11 Alliott Group* 16.6 -27% 37 11 18 30 - - 4 Dec-10

12 Klako Group(1)* 16.2 -7% 30 30 40 - - - - Dec-11

13 UC&CS Asia* 3.2 -3% 10 50 - - - 40 - Dec-11


Notes: Greater China revenue includes Hong Kong and Taiwan. *Disclaimer = Only data from the exclusive member firms within the association is included. Data relating to correspondent and non-exclusive member firms is not included. (1) Klako Group is a non-exclusive member of GMN International. Source: International Accounting Bulletin

iAB CoUNTRy SURvEyInternational Accounting Bulletin CHiNA


n GREATER CHiNA

networks - stAff dAtA

Rank Name


staff offices

2011 2010 Growth 2011 2010 2011 2010 2011 2010 2011 2010

1 PwC*(e) 12,200 10,339 18% 520 450 10,480 8,806 1,200 1,082 26 25

2 Deloitte*(e) 11,400 9,661 18% 430 360 8,970 7,850 1,040 824 23 20

3 Ernst & Young*(e) 10,000 8,475 18% 390 342 8,520 7,311 990 822 21 20

4 KPMG*(e) 9,000 7,627 18% 360 305 7,740 6,718 900 704 19 18

5 BDO China* 5,677 4,830 18% 237 158 4,886 4,321 554 351 49 57

6 RSM International* 3,529 3,507 1% 150 212 3,050 2,982 329 313 28 27

7 Crowe Horwath International* 3,429 3,282 4% 130 86 3,013 2,917 286 279 34 36

8 Kreston International* 2,829 1,880 50% 86 56 2,462 1,607 281 217 50 45

9 Baker Tilly International* 2,797 2,038 37% 72 59 2,466 1,770 259 209 20 18

10 Grant Thornton International* 2,487 1,543 61% 126 73 2,176 1,405 185 65 17 12

11 Nexia International* 2,279 2,165 5% 84 90 1,944 1,618 251 457 58 58

12 PKF China* 1,855 3,117 -40% 56 52 1,633 2,958 166 107 20 17

13 HLB China* 1,851 1,072 73% 143 43 1,543 937 165 92 19 10

14 Reanda International* 1,715 1,646 4% 62 49 1,449 1,500 204 97 23 19

15 Moore Stephens China* 1,327 543 144% 56 22 1,089 365 182 156 20 13

16 Mazars* 487 522 -7% 15 14 410 457 62 51 4 4

17 Russell Bedford International* 258 213 21% 19 14 217 184 22 15 11 9

Totals 73,120 62,460 4% 2,936 2,385 62,048 53,706 7,076 5,841 442 408

Notes: (e) = IAB estimate. *Disclaimer = Only data from the exclusive member firms within the network is included. Data relating to correspondent and non-exclusive member firms is not included.



down the reverse takeover route don’t get the exit visa from the Chinese authorities. There is a need for more communication among the regulators, not complaints to each other after the mess is done,” Wu says.

Ross says there is a general belief that cases such as Longtop have lead to a decrease in Chinese companies entering US capital mar-kets because of regulatory concerns.

“We just have to make sure our audit pro-cedures are up-to-date and the emphasis is on making all the staff more sceptical of the answers that management give you when you’re asking queries in an audit. Don’t just accept management representations, ask for proof and look for more detail of the underly-ing transactions,” he says.

Wu says it is unfair for the US to say there is fraud and unreliability in Chinese financial statements.

“Although we have come a long way to installing confidence in the accounting infor-mation of Chinese companies, the profession-al accounting service is still a young industry and it is developing in a fast growing and complex economy,” he says.

Another potential regulatory requirement that could shake up the market is the manda-tory separation of audit and tax services. The government is considering whether to segre-gate audit and tax services.

“In my opinion, the Chinese regulators will look to see what else is going on elsewhere in the world and they may just follow the trend. It seems unlikely they will make a decision on this, certainly not in 2012,” Ross says.

The core serviceAudit is the largest service for firms in Great-er China, bringing in 64% of fees.

Grant Thornton China had 29% organic growth in audit.

“This is mainly down to the China’s economic growth, an increase in SME cli-ents and the 25% increase in IPOs across China, which resulted in mandatory audits of companies prior to floating on the stock exchange,” Zhidong says.

Chinese firms are starting to report increased competition in audit, which has lead to fee pressure. Wu says this is being driven by the improving quality of domestic Chinese firms.

“It’s the Big Four who compete more among themselves on audit price. Second-tier Chinese accounting firms are becoming more professional. They are serious competitors and now they are being invited to bid for big audit tenders,” he says.

Lianqi says pricing pressures might lead to less attention on other parts of professional services, such as technical proficency.

“The biggest challenge is how to balance audit efficiency and audit quality, and also client’s demand and professional supply,” Lianqi says.

More than a year ago, China’s MoF award-ed 12 mainland accounting firms with cov-eted H-share licences after a successful pilot programme allowing Mainland firms to sign off audits of Chinese companies listed on the Hong Kong Stock Exchange. The main ben-efit of the licence is the reputation it gives the firms.

H-share licences have not led to an increase in clients moving their business over to main-land firms, according to Zhidong.

“This is mainly because the clients are just so big they prefer to stay with the Big Four especially as these large clients are listed around the world and need international sup-port,” he says.

Lianqi says the licence has enabled RSM China a good starting point to go out of China and serve a wider range of interna-tional clients.

Baker Tilly China missed out on the licence and there is no known date when a retender-ing process might take place.

“According to my colleagues in China, more H-share licences are to be made avail-able in the course of the next two to three years. But there is nothing in writing to sup-


n GREATER CHiNA

AssocIAtIons - stAff dAtA

Rank Name


staff offices

2011 2010 Growth 2011 2010 2011 2010 2011 2010 2011 2010

1 Praxity* 4,156 578 619% 162 19 3,042 497 952 62 28 6

2 Morison International* 941 953 -1% 21 22 848 849 72 82 14 14

3 IGAF Polaris* 620 - - 43 - 461 - 116 - 19 -

4 DFK International* 304 262 16% 21 22 229 203 54 37 12 10

5 KS International* 299 289 3% 13 13 248 236 38 40 12 12

6 Integra International* 250 239 5% 13 12 229 219 8 8 15 15

7 MSI Gobal Alliance* 249 186 34% 15 6 202 150 32 30 5 6

8 INPACT Asia-Pacific* 242 294 -18% 30 15 204 259 8 20 5 5

9 MGI* 216 255 -15% 6 5 160 200 50 50 6 6

10 Alliott Group* 126 128 -2% 12 12 94 94 20 22 5 7

11 Klako Group(1) 123 121 2% 3 1 120 120 - - 4 4

12 IAPA* 118 130 -95% 10 10 57 72 51 48 8 8

13 UC&CS Asia* 4 4 0% 1 1 2 2 1 1 2 2

Totals 7,648 3,439 122% 350 138 5,896 2,901 1,402 400 135 95

Notes: *Disclaimer = Only data from the exclusive member firms within the association is included. Data relating to correspondent and non-exclusive member firms is not included. (1) Klako Group is a non-exclusive member of GMN International. Source: International Accounting Bulletin

CoUNTRy CoUNTRy SURvEyInternational Accounting Bulletin CHiNA

port that just yet,” he says.China has been in the process of converg-

ing with IFRS over the past five years but the date for full adoption is yet to be decided.

Chinese CPAs are starting to ‘master’ IFRS and Wu says the quality of IFRS implementa-tion has become higher.

“The challenge is to maintain the quality of standard and implementation by the MoF and by preparers of financial statements,” he says.

When it comes to full IFRS adoption or convergence one can never say ‘shortly’ in China, according to Ross.

“There are certain local issues that will have to be dealt with before reporting stand-ards are fully convergent with the interna-tional standards,” he says.

Non-audit servicesChina’s tax structure is relatively simple due to the country being a communist regime. In the past that has dampened the enthusiasm for tax advice but firm leaders believe this is slowly changing, particularly in international tax work.

“I think previously it looked a bit un-nationalistic to seek ways of reducing your tax, so companies weren’t so aggressive in that area. We seem to be moving on from that now. Companies are actively seeking tax structuring and tax advice,” Ross says.

Ross says there is a lot of work in advising appropriate tax transfer policies, particularly

in the past three to four years.BDO reported a 62% increase in tax,

which represent just 6% of the networks rev-enue in Greater China.

“I think in tax, the development of the pro-fession is gaining momentum, one step behind audit. There has been increased investment in developing international tax advisory and recruiting people in this area,” Liu says.

RSM China’s tax practice has not achieved rapid growth due to the restrictive tax system and regulation in China.

“We can see the opportunities in the change from business tax to value-added tax, and on the other hand, we have to improve our capa-bility in tax planning, that is our challenge for the future. As for international tax business, I believe it will grow gradually,” Lianqi says.

In China, the Big Four’s client book tends to be filled with multinationals and PwC’s main advisory opportunity is linked to Chi-na’s outbound investments, which are grow-ing steadily.

“There are three types of outbound acqui-sitions – strategic resources like energy, oil, gas and coal, which are driven by the gov-ernment. And, big companies need account-ing firms to do proper due diligence. Also, there are acquisition of companies with well known private brands in the US and Europe. The third type of acquisitions is that of mar-ket share which happens more in Asia,” he explains.

“Such companies require financial due

diligence to identify the quality of earnings on the balance sheet. Tax planning and legal compliance expertise is needed to assist cli-ents to understand tax and legal requirements in the acquisition country. There is a demand for post acquisition integration.”

Another major source of income for firms is M&A advisory work. Althogh M&A is still strong in China relative to the rest of the world, Ross has observed a slight decline.

“There is not the same number of compa-nies coming to the market in China,” he says.

“Reading the newspaper we can see Chi-na’s forecast growth in the first quarter has

Management Consulting, 17%

Other, 14%

n GREATER CHiNAMid-tier average fee split

Tax, 13% Audit & Accountancy, 63%




20 y April 2012 www.InternationalAccountingBulletin.comwww.InternationalAccountingBulletin.com

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n GREATER CHiNA

NETWoRK or ASSoCiATioN FiRM AddiTioNS, MERGERS & ACQUiSiTioNS

Grant Thornton China Merged: Ascenda CPAs merged with GT China

HLB International Gained: Zhejiang Dewei, Sichuan Zhongfa

Kreston International Gained: Huapu Tianjian Certified Public Accountants, Tianjin Guangxin CPAs, Yunnan Yong Sheng Certified Public Accountants, Hunan Tianping Zhengda Certified Public Accountants; Lost: Jimmy C.H. Cheung & Co

Praxity Gained: Shine Wing

PwC opened: Nanjing office

Reanda International Gained: offices in Shanxi,Gansu,Yunnan

Russell Bedford International Gained: Shanghai JiaLiang CPAs (Shanghai)


declined. Companies aren’t doing quite as well as they had in the past and that is caus-ing them not to come to market. There has been such a boom of companies coming to market in the past years I think we could only see a little bit of a decrease in the base of those companies.”

BDO has had advisory opportunities come out of the MoF’s regulation on internal con-trols of listed companies, dubbed ‘China SOX’. China SOX, which requires compa-nies to set up and implement internal control systems, was introduced in 2009.

“There is quite a lot of work now on China SOX, which is to comply with the govern-ment regulations as opposed to what internal controls a company has in place,” Liu says.

“If we take that one step back there has actually been quite a lot of consultancy work in China recently, where companies have accounting firms advise them on putting a proper set of internal controls. That’s been propelled forwards by the fact that China SOX has been introduced and those inter-nal controls were put forward for subject review.”

Grant Thornton has had an increase in management consulting as a result of China SOX and helping companies implement internal control reviews.

“Some of the advisory increase comes from us setting up a transactions advisory division and that has been growing well,” Zhidong says.

Brain drainA roadblock to growth in China is a talent shortage. Liu says the staff shortage has an effect on the firm’s efficiency, structure and the rate of growth.

“I think it is a very young profession in the sense that a lot of standardised operations that we are so familiar with in the West is not quite there yet,” Liu says.

“That can be quite restrictive in develop-ment as well as the fact that you just don’t have as many qualified people to improve the

efficiency of the work.“I think one of the major challenges eve-

ryone is facing is talent. People generally say China is going through a brain drain and the economy is developing very fast but there aren’t enough qualified or experienced pro-fessionals operating in the market.

“I think that is definitely one of the key things we feel the pressure as everybody else does.”

Ross says it’s not only a problem finding staff but also in retaining them after one or two years.

“The staff come as graduates, they work for one or two years, get more exposure to external industries and they go off,” he says.

Despite the shortage of talent and regulato-ry challenges, accounting firms are in a good position to grow and find new ways of inte-grating global business practices with China’s enormous potential and capacity.

The demand for advisory and tax services is increasing, while audit is robust, providing a solid foundation for growth.

China’s accounting profession is evolving, propelled by a government that is determined to see domestic firms compete on a global level.

There are challenges for the Big Four as their licences are up for renewal and it is unclear how the government will act.

For the mid-tier, China represents one of the final frontiers, a country where they do not have to battle concentration and market bias, and are openly encouraged to tackle the Big Four. It is a far cry from Europe, which is now looking to redress years of concentra-tion through controversial industry reforms.

China’s will soon become the second larg-est accounting profession by way of head-count and is already one of the largest recipi-ents global investment.

It may take years for Chinese firms to become global players but this is more a mat-ter of ‘when’ rather than ‘if’. China's impor-tance to global accounting should never be underestimated. <

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Documents

April 2012 Issue 505-506 … · 2014-11-27 · more than half preferring a 10-12 year maximum term. STRATEGy Baker Tilly expands in denmark, Ghana Baker Tilly International has added