China’s Accountancy Profession
Dr. Chen Yugui
Vice President ＆ Secretary General
The Chinese Institute of Certified Public Accountants (CICPA)
(October 19, 2015, Beijing)
The accountancy profession was established in China in 1918. Along with China’s historic economic reform and opening up policies, the accountancy profession was revitalized and reconstructed and grew steadily in the past 35 years. In China, the accountancy profession is now a widely recognized and respectable profession. Accountants are an important link of integrity, and a key element of the market system.
I. Progress made by the accountancy profession along with implementation of strategies in China
The Chinese government has always attached great importance to the accountancy profession, and regarded the profession as a key element of the market system. During the course of economic reform and socio-economic development, the Chinese government has been setting policies and measures in due times to support and promote the accountancy profession. At the same time, the accountancy profession grasped the period of strategic opportunity brought about by the China’s rapid development, “held on to the theme of serving the nation building and integrity building”, actively promoted the implementation of the profession’s strategy, and great achievements were made.
(I) Strategy of talent cultivation to set up a scientific talent-training system
In 2005, CICPA released the CICPA Guideline on Reinforcing Cultivation of Professional Talents. After 10 years of efforts, CICPA formed a talent training mechanism. The mechanism focuses on training leading talents and internationally orientated talents, and provides training in stages and at various levels, which is supplemented by joint training by firms and other organizations.
(II) Strategy of international convergence of professional standards to formulate the Chinese Auditing Standards that conform to international ones
In early 2006, CICPA released its auditing and accounting standards that converged with the International Standards on Auditing, and in October, 2010, we released the revised Chinese Auditing Standards in response to the revision of the International Standards on Auditing, which constitute a set of professional standards that conforms to both the demands of market development and the trend of international convergence. In 2009, we issued the China Code of Ethics for Certified Public Accountants that converged with the Code of Ethics for Professional Accountants. The International Auditing and Assurance Standards Board (IAASB) highly praised China’s efforts and achievements in converging with international accounting and auditing standards, commenting this “as a model for developing countries and countries with economies in transition”. In 2009, World Bank stated in its report that “the Chinese strategy for improving the quality of accounting and auditing standards and practices has evolved as a good practice model that may be followed by other countries”.
(III) Strategy of promoting more competitive and bigger accounting firms to improve their capability of serving nation building
In 2007, CICPA, together with nine ministries and commissions, including the Ministry of Commerce, released the Opinions on Supporting Accounting Firms in Expanding Exports of Accounting Services. In 2012, CICPA released the Policy Measures on Supporting More Competitive and Bigger Accounting Firms. In 2013, CICPA released Opinions on Increasing the Capacities of Accountancy Profession for Serving the Financial Industry, in support of the accountancy profession to provide high-end services, such as financial sector audits and consultation. In the fiscal year of 2014, of the top 100 accounting firms, of which, 48 firms recorded revenue of more than 100 million yuan, 19 firms’ revenue outnumbered 500 million yuan, 12 firms reaped revenue of more than 1 billion yuan, 6 firms’ revenue exceeded 2 billion yuan and 3 firms’ revenue exceeded 3 billion yuan. We should consider the number under the context that Chinese accounting firms’ fee level is not as high as that in developed economies, especially in Northern America. So we are trying to increase the fee level of Chinese accountancy profession.
(IV) Strategy of developing non-audit services for the firms to diversify their services
In 2010, CICPA formulated a series of guiding documents, including Opinions on Implementing Strategy of Developing Non-Audit Services, Work Plan of Developing Non-Audit Services in NewAreas of Economic and Social Development, Services Directory, and Work Plan of Accounting Service Model Bases. Over the 5 years since the implementation of the strategy of developing non audit services, the firms have widened their type and scope of non-audit services to a large extent.
(V) Strategy of IT system construction for the accountancy profession
In 2011, CICPA released Report on Construction of a Cohesive IT Framework for Chinese Accountancy Profession to launch the strategy of IT system construction. Over the past three years, CICPA unified the professional resources of accountancy profession and made initial achievements. A series of projects have been accomplished, including audit software for large accounting firm which has been independently developed by CICPA, database of laws and regulations and economic information database for the firms’ use for free.
As of June 30, 2015, Chinese accountancy profession had 100,601 certified public accountants, 109,908 non-practicing members, 8,331 accounting firms (including 980 branches), of which 40 were accounting firms with license to audit listed companies. The workforce in this profession exceeds 300,000 people, providing auditing, assurance, accounting, management consulting, and tax consulting services for over 42 million enterprises, institutions and organizations (including more than 2700 listed companies and over three thousand companies on the new OTC market). In 2014, the annual revenue of the whole profession was 60.3 billion yuan, with an average annual growth rate of 12.61% in the 12th Five-Year Plan period.
II. Opportunities facing the accountancy profession
Chinese accountancy profession is faced with great development opportunities and bonus resulting from reform that come with the government’s streamlining of administration and delegation of power, opening wider to the outside world, financial innovation.
(I) Streamlining administration and decentralizing government functions to stimulate the vitality of the market
One key aspect of deepening reform in China is to give full play to the decisive role of market in resources allocation, and the accounting information audited and assured by CPAs, will be important in terms of underpinning such decisive role. The more mature the market mechanism is, the more opportunities and room it can provide for the development of the profession and expansion of service areas, and the improvement of professional service quality. In addition, the government function shift, administration streamlining and power delegation will be a good opportunity for the profession to take over the functions the government ever holds.
(II) Opening up wider to the outside world and encouraging capital flow outbound
Given the globalization of economy, China’s economy is increasingly integrating with the world economy. As we are now opening wider to the outside world, the Chinese government expressed a wish to build China into an open and strong economy, by instituting a new and open economic system, where reform interacts well with opening up, import combines well with export, and be the initiator in economic development and international competition. We should proactively participate in global economic governance and act as a participator in enacting rules on international economy and trade, expand international cooperation and exchange to form a deeply integrated economic union. This will be a hard-won opportunity for Chinese CPAs, enterprises and capital to go out.
(III) Financial innovation increases the demand for high quality financial information
Nowadays, financial innovation happens every day. The industrial development led or supported by finance has become a universal consensus. Previously, we exercised strict control over bank license, but now we began to issue license to private sector, that’s why we now see a continued emergence of small and medium-sized banks, insurance companies, and financial leasing institutions. Internet finance also pushes the change of financial landscape. The flow of finance (as virtual capital) implies the deepening of agency relationship. This gives rise to the demand for high quality economic information, which may bring about even greater demand for auditing and assurance services.
(IV) IT promotes the innovation of the accountancy profession
IT system construction is now a key feature of social and economic development, which is a vital engine for new technological and industrial revolution. At present, the implications of information technology on the profession are as follows:
Cloud computing improves the efficiency of exploiting IT resources in the profession. Cloud computing enables accounting firms to operate remotely, effectively store and use of big data, integrate and share the auditing data, reduce the hardware and software operation and maintenance cost and to continue services and recover data from disaster.
Big data drives the improvement of auditing method. Big data enables accounting firms to effectively collect, store, analyze and mine data, to recognize and evaluate risks of material misstatement and take responsive measures, and to reasonably allocate auditing resources.
“Internet plus” drives the change of auditing approach. Internet enables accounting firms to establish their real-time quality monitoring and control system, so that they can control before, during and after the preparation of audit reports; to establish the just-in-time auditing and continuous auditing systems, in order to spot errors or frauds in time and solve the time difference between the audit results and economic activity; and to establish a mobile office system for auditing operation and internal
management, in order to improve the audit quality and efficiency.
In addition, the integration of cloud computing, big data and “Internet plus” with the accountancy profession management and services helps to change the management and member services from traditional vertical linear mode to the meshed mode, from segmented mode to integral collaborative mode, so that people may have the right to know, express, participate in and supervise the management and services, making the decisions on management and services more reasonable.
III. Areas further improved by the accountancy profession
The accountancy profession in China is now a widely recognized and respectable profession, an important link in the integrity chain of market economy, and a key part of the market supervision system. However, compared to the counterparts, we still have a long way to go.
(I) Core competitiveness of the firms needs to be fostered
The core competitiveness of accounting firms manifests mainly in higher international reputation and brand awareness, scientific and reasonable internal governance, sufficient and multi-disciplinary high caliber talents, modern IT-equipped technologies, standard-compliant quality control system, scale and network capable of serving high-end customers. Presently, the accounting firms are growing rapidly in China, and yet they have to improve their internal governance, strengthen their quality control system, and reinforce their brand building. Only a few of such firms are behind many large enterprises of China when they go listing on foreign stock exchanges, to issue bonds, to invest, and to merge overseas.
(II) IT is not yet widely applied in the profession
Since 2014, the Chinese accountancy profession has begun its strategy of overall IT system construction for accountancy profession management and member services, and for accounting firms as well. Over the five years, initial results have been achieved in digitalizing CICPA’s management and member services, but there’s still some distance from the IT strategic goal. For example, the top-level design needs deepening, the process flow needs optimizing, and the respective responsibilities of those concerned need clarifying. The IT of accounting firms includes its administrative management system and service management system. Currently, most of the large firms have set up the two systems, this is the real situation in China. However, some of their systems have to be optimized. A number of small and medium-sized firms have set up their administrative management system and employed auditing software, which were either developed by themselves or bought from third parties. And still, some firms have not done so. Our progress in IT system construction has not been recognized by the whole profession and the significance of big data and internet plus has not been recognized by most accounting firms.
(III) Risks facing the Accountancy profession need to be addressed
The rapid development of securities market in China, especially the launch of growth enterprise market and new OTC market, has charged accounting firms with even larger auditing responsibilities. As the Securities Law and relevant laws are revised, based on the priority of civil liabilities, the firms will take on even larger risks of civil compensation. Some of them may face even more severe regulation for their lack of independence, poor service quality and unfair competition behavior. The free competition escalates day by day in professional service market, and the non-audit services face even greater competition and threat. With the development of modern information technology, such as big data, cloud computing and internet, the accounting firms are now practicing in the IT environment, where they face the risk that their auditing technology may lag behind of the change of information technology.
IV. Chinese accountancy profession: what to do next?
Fully aware of the situation, opportunities and challenges, the Chinese accountancy profession has adapted to the new normal of China’s economy, bravely and actively taken on new missions in the aspects of economic development, market stability and safeguarding public interest. In the next period of time, the accountancy profession will develop towards:
(I) Internationalization
Since its establishment, CICPA has been actively engaging itself in international cooperation and communication, and exploited international resources and drawn on international experience in the course of its development. For example, CICPA pushed forward the international convergence of auditing standards, cultivated high caliber talents with internationally recognized qualification and competence comparable with international peers, made the audit regulation system of China equivalent to international practices, and encouraged the accounting firms to go out. Next, we will continue to support the global development of the accountancy profession: in terms of auditing standards, we will revise the auditing standards, revise audit report mode, improve the audit communication value, provide the relevance and usefulness of audit reports, and continuously converge Chinese auditing standards with international ones; in terms of CPA examinations, we will continue to work on examining the professional competence and making Chinese CPA as the pass to undertake international engagements; in terms of audit regulation, we will continue to inspect the firms engaging in securities and futures once every three years, improve the methods of evaluating their internal quality control system, implementing their compliance test programs and checking their working papers, for the purpose of converging Chinese audit regulation system with the international one; In terms of high caliber talent training, we will improve the talent training system, increase the training of leading talents and high-end talents, encourage Chinese CPAs to obtain qualifications from overseas accounting organizations, sign agreements on the Mutual Exemption of Some CPA Examination Subjects with Hong Kong Institute of Certified Public Accountants (HKICPA) and the Institute of Chartered Accountants in England & Wales (ICAEW); and in terms of firms’ “going global”, we will, in response to Chinese “going global” strategy and the “One Belt and One Road” initiative, encourage accounting firms to join international networks, or develop member firms overseas, for the purpose of practically raising their core competitiveness, enhancing their capacity to grow overseas, increasing their right of say on the international arena, and especially serving the clients globally.
(II) Professionalization
CPAs are highly professionalized in terms of expertise, vocational skills, professional values, professional ethics and attitude, and practical experience, of which the professional values, professional ethics and attitude are the core of the accountancy profession, for they are the basic elements of credibility culture. To professionalize the CPA, we will (a) establish an examination system with enriched content and improved examination methods, which may support lifelong learning and professionalization; (b) improve the integrity information monitoring system based on “certification”, revise the China Code of Ethics for Certified Public Accountants and the Code of Ethics for Non-Practicing Members of CICPA; (c) improve the efficiency and effect of CPD by emphasizing the credit hours and professional training content, combining traditional training means with modern information technology, so that the CPAs can keep and enhance their professional competency.
(III) Construction of accounting service market
The development of capital market, the focus on economic efficiency and the up grading of economic structure place huge demands for such services as accounting, auditing, finance, tax, management consulting, and strategic planning. With the expansion of their service scope, CPAs will play a bigger role in fair value assessment, public-private partnership, and anti-money laundering, so the accountancy profession shall look to the market, and they shall demonstrate their excellent expertise, excellent service and good brand image to the public and their customers so that they can be trusted and relied on. In this respect, we will (a) assist the regulatory authorities in designing an open, transparent and non-discriminatory bidding procedure, which will reinforce the responsibility and authority of audit committee, and any third party shall not advise, influence or interfere with the audited organization on its engagement of auditor(s); (b) support the government authorities in improving the audit firm rotation system, defining a reasonable service period and cooling-off period, so that the firms are able to keep their independence on the one hand, and able to control their quality, risk and cost on the other; (c) regulate the market order through continued efforts to counter unfair competition, combat any actions of unfair competition and disrupting market order; (d) expand the audit and assurance services to new areas such as corporate social responsibility report, internal control, energy conservation & emission reduction, and insolvency; and (e) develop non-audit services, such as entities’ internal control, strategic management, mergers and acquisitions, due diligence, investment decision, and other consulting services. In this way, the accounting firms will expand their customer base from enterprises to government (departments), institutions, non-profit organizations, etc.
(IV) IT system construction
Let’s take advantage of such a wonderful opportunity that came with the Internet technological development to enhance our capacity to serve the nation building by making full use of cloud computing and big data. At the CICPA level, we will use IT tools in profession management and services, upgrade the profession management information system and build a collaborative office system to achieve a well-run management and member service platform, thus changing the IT construction from supporting service management to the support of both member service management and decision-making. Also, we should try to dock the above two systems with the information system of accounting firms. At the firm level, we encourage them to use cloud computing and big data and internet technology to elevate their internal management system and service management system. The accounting firms that have joined international networks may use such systems of the international networks on the basis of localization and security. Those with their own developed information system may improve their administrative management system and service management system according to the IT construction framework, or built their private cloud platform for such two systems. The small and medium-sized firms may purchase the administrative management system and service management system, or rent a public cloud platform that provide functions of the two systems.
Ladies and gentlemen,
The cooperation with international accounting networks has been the momentum and basic experience to promote the development of the Chinese accountancy profession. I hope that international accounting networks and alliances, including Praxity, will continue to strengthen their support for their Chinese member firms and associates for mutual development. First, to use the influence of world brands to promote brand building of member firms and associates, so as to form an integrated brand management system; second, to exchange and cultivate professional talents, so that the member firms and associates will be able to cultivate and attract more high-end talents to better serve customers in economic globalization; third, to share the knowledge and experience of international networks and alliances in service development, help member firms and associates to improve their way of service development, and to optimize their service structure; fourth, to draw on the experience of international networks and alliances in IT construction to improve the internal management system and engagement management system of member firms and associates, so that they can have higher capacities to provide professional services.
I firmly believe that, during the course of establishing a sound and open economic system in China, Praxity Global Alliance and ShineWing will have broader development room and will surely play a greater role. I wish, in the next five years from 2015 to 2020 or even a longer time, Praxity Global Alliance and ShineWing will have a better future.
(This paper was extracted from the author’s keynote speech titled as China’s Economy and the Accountancy Profession at the Annual Senior Partners Meeting of Praxity Global Alliance)
