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20 Nov 2012 11:07am

Big Four dominance won't last in China

RSM is likely to be challenging the dominance of the Big Four in China within the next couple of years, according to the managing partner of its Chinese practice

Speaking at the recent RSM annual conference, Gu Ren-rong said that RSM was already the fifth largest firm in the region and was snapping at the Big Four’s heels. Despite their power, it was market dynamics, rather than regulation, that presented the greatest threat to the Big Four’s dominance in China he said, and RSM China CPAs was gaining on them in terms of fee income.

According to International Accounting Bulletin’s most recent survey of the top firms in China, RSM was ranked sixth in Greater China and fifth in mainland China. Growth rates were 15% and 17% respectively.

However, the firm’s growth rate will have to be truly spectacular if it is to catch up with fourth placed KPMG. The Big Four do not reveal the income they earn in China but from official Chinese Institute of Certified Public Accountants figures and other sources, IAB estimates that KPMG’s fee income in Mainland China was $2,197m, compared to RSM China’s $981.5m.

In 2013, RSM will also have to contend with the combined strength of PKF and BDO’s practices in China. They are due to merge next year. The combined fee income in the IAB survey for mainland China totals $1,155.9m, well ahead of RSM.

Gu revealed RSM China CPA’s plans during a discussion on the value of audit. The panel leading the debate – which also included AICPA chairman Richard Caturano, EGIAN executive director John Capper, Fédération des Experts Comptables Européens CEO Olivier Boutellis-Taft and IAASB chairman Arnold Schilder – agreed that the global financial crisis had raised issues of trust for the profession and called into question the relevance of audit as an early warning system.

“If, as auditors, we are not warning the market of systemic risks, then what is the process there for?” asked panel chair Bob Dohrer, RSM’s global leader of quality and risk.

“Some of the changes being suggested could have a revolutionary impact on the audit profession. It is up to us to raise our game or face greater regulation and public scepticism.”

Most panel members agreed, though, that regulation was not the way forward. Caturano said that mandatory audit rotation, for example, should be opposed as a matter of principle. Firms outside the Big Four that were keen to gain a greater share of the audit market should focus on having stronger networks and delivering better client service, rather than hoping for regulatory intervention.

However, Capper thought that regulation might be the only way to improve competition. Joint or shared audit might be a better solution, he suggested, than plain rotation which might simply result in audits being passed around the Big Four.

“The kind of information that auditors are ideally placed to provide is more vital to the global economy than ever before,” said RSM CEO Jean Stephens, “yet the value of the audit – under question due to market recent events – is now more discredited than ever.

“As a profession, we must take a leading role in reshaping the audit process and reaffirming the independence, worth and reliability of auditors to deliver that much needed information.”

 

Julia Irvine

 

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