Concerns about data security have spurred Chinese authorities to urge state-owned companies to stop using the four largest global accounting firms as Beijing seeks to limit the influence of Western auditors, Bloomberg News reported.
China’s Ministry of Finance is one of the government entities that provided informal guidance to several state-owned enterprises as recently as last month, asking them to let contracts with EY, PwC, KPMG, and Deloitte expire, the report said, citing people with knowledge of the matter.
While offshore subsidiaries can hire global auditors, their parent companies were asked to hire local Chinese or Hong Kong accountants when contracts are being renewed, one of the people told Bloomberg.
The Ministry of Finance failed to immediately reply to Reuters’ requests for comment. PricewaterhouseCoopers (PwC) would not comment and the other leading audit firms did not immediately reply.
Data policy is one of several areas over which China has heightened its scrutiny to try to make sure practices are not a threat to the country’s national and economic interests.
At the same time, geopolitical tensions are escalating, with some business leaders raising concerns about the decoupling of China, the world’s second-biggest economy, from the United States, the biggest.
China enforced its Data Security Law in September 2021, broadly requiring Chinese firms and localities to group data based on its relevance to national security and the economy. The top accounting firms across the globe by revenue are Deloitte, PwC, Ernst & Young (EY), and Klynveld Peat Marwick Goerdeler (KPMG), or the Big Four.
They jointly earned revenue of 20.6 billion yuan ($2.99 billion) from all Chinese clients in 2021, Bloomberg said, citing finance ministry data.
China has been unwilling to allow offshore authorities to access U.S.-listed Chinese firms’ audit papers without its approval, pointing to national security concerns.
The two sides struck a deal in 2022 to let U.S. securities regulators audit the documents in Hong Kong. The U.S. accounting watchdog in December said it has complete access to audit and investigate companies in China for the first time.
Erica Williams, chair of the U.S. Public Company Accounting Oversight Board, said on Wednesday there would be “no loopholes” for accounting firms in China that are registered with her agency.
“Should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s complete access at any point in any way, the board will act immediately,” she said.
($1 = 6.8951 Chinese yuan renminbi)
