China Requests State Firms To Drop Big Four Audit Firms For Data Security

The Chinese authorities have been wary of the threats to data security. This has caused the state-owned authorities to stop using prominent global accounting firms as China is trying to prevent the influence of Western auditors. Various sources have stated that the Chinese Ministry of Finance, which is among the government entities have asked the state-owned firms to expire their contracts with the firms like PwC, EY, KPMG, and Deloitte.

They have even enabled offshore businesses to use global auditors. However, their parent companies were asked to hire any Chinese or Hong Kong accountants when the contract appeared for a renewal process.

China has tightened its scrutiny over data security and has ensured to impose policies that do not threaten the national and economic interests of China. China is even overlapped with geopolitical tensions.

China has initiated an attempt to prevent the influence of U.S.-linked global firms and protect China’s critical data. Furthermore, a step has been taken to boost the local accounting industry. Beijing has been asking the companies to avoid using such auditing firms, but recently, they have reemphasized that the companies should opt for other auditing firms than the Big Four. There has been no deadline, and replacements could be made when the contracts expire.

Previously, the China-U.S. deal was paused last year, indicating that the two dominant economies can still overcome some issues. Beijing’s audit guidance has come off as a reminder that the decoupling is still taking place in some specific areas like the SOEs and advanced technologies. But one of the major shortcomings is that if China shifts to Hong Kong or the state-owned auditors, it will make it difficult to gain the confidence of international investors.

The chief executive officer of a Hong Kong-based International Business, Richard Harris, has raised concerns about the matter, stating that it will build a hurdle for the Chinese SOEs for appealing to the international market. He has further added that the data secured will be integral enough to justify blocking access to international capital. At the same time, accountants are legally obliged to secure the information and maintain the utmost confidentiality.

China’s Finance Ministry and the representatives of the Chinese firms, including the offices of PricewaterhouseCoopers LLP, Ernst and Young, KPMG, and Deloitte and Touche LLP- which are collectively known as the Big four have denied commenting on the matter.

The rivalries between China and the USA do not seem to come to an end in the near future. It has increased with the issue of an alleged surveillance balloon from China to the U.S. airspace.

The US government had previously discovered a balloon that was hovering over Montana at a height of more than 40,000 feet. Currently, the nation believes it to be a spy balloon sent by China to spy on the US. Senior defense officials have discussed the situation and expressed their conviction that the People’s Republic of China sent the surveillance balloon. Before the administration, such occurrences frequently occurred throughout the year.

The incident has established itself as a threat to the US government because of the sensitive location. Montana is the base for the Air Force’s 341st Missile Wing, which is in charge of the Minuteman III intercontinental ballistic missiles.

The American government had disclosed the balloon earlier in the week, but it wasn’t until Thursday that the Biden administration made the situation widely known.

Additionally, a government official claimed that the United States government had begun to track down the location where it opened up access to Northern America.

The top diplomat for the Chinese government has criticized the shooting down of the surveillance balloon as a waste of U.S. forces and called it hysterical and absurd.

At a recent security conference in Munich, Wang Yi discussed the subject and claimed that the action does not demonstrate the strength of the United States. Instead, it demonstrates how weak the country is. The senior diplomat continued by saying that by choosing to shoot down the surveillance balloon, the Biden administration was diverted from the domestic problems that the nation was facing.

China has previously claimed that the balloon was not a spying device but rather a civilian, non-military instrument. The balloon has deviated from its course.

Big Four Dropping Out of China: Who are the Winners or Losers?

Dropping out from China would come as a big loss for the Big Four firms. According to recent data, the big four earned a combined revenue of 20.6 billion Chinese Yuan for Chinese clients in 2021.
The Hong Kong exchange filings have stated that small Chinese and Hong Kong firms have gained twenty jobs from the Big Four.

While the Big Four dominate China in terms of auditing, mall auditing companies have been rising significantly. Potential business rivals could replace the Big Four, including the Pan-China-certified public accountants and other firms.

Harris has mentioned that the Big Four have expanded in the international market because of its perceived independence and size. They are constantly subjected to various regulators on which the Western financial system depends. For small companies to match up with the Big Four, they need to adopt similar internal controls and external regulations.

edited and proofread by nikita sharma