by winston » Fri Jun 24, 2011 6:45 pm
China accounting scandals put Big Four auditors on red alert by Rachel Armstrong
HONG KONG (Reuters) - The string of accounting problems and stock plunges at publicly traded Chinese groups has sparked deep concerns across the world's biggest audit firms, putting the so-called Big Four on alert from worries that their reputation could be brought down along with a growing list of stricken companies.
Auditing Chinese firms preparing to go public on overseas exchanges is a lucrative business and one that plays into the strengths of the top, international auditing partnerships known as the Big Four: KPMG, Ernst & Young, Deloitte Touche Tohmatsu and PricewaterhouseCoopers.
Yet fears are growing that the struggle to find enough high-quality auditors in China and Hong Kong means it may only be a matter of time until one of the top firms finds itself caught in a blow-up rivaling Enron, which brought down their old rival Arthur Andersen.
"Costs have gone up, fees have gone down, as competition for fees is enormous. You can easily see there is a real risk of an audit firm failing," said Paul Winkelmann, the partner in charge of risk and compliance for PWC in Greater China.
The Big Four are also getting nervous about work with existing Chinese clients, turning to lawyers at an earlier stage if they think something might be amiss.
CHINA BOOMING BIZ
The big four have basked in China's emergence as an economic powerhouse. In 2009 their revenue from work on the mainland stood at 9.1 billion yuan ($1.41 billion) according to the Chinese Institute of CPAs (CICPA), around half of China's accounting industry's revenue. Last year's figures were not immediately available.
Last month, Deloitte quit as auditor of Longtop Financial Technologies after working on the company's books for six years, citing "recently identified falsity" in their finances.
Ernst & Young was named in two class action lawsuits over its work on Sino-Forest, the Toronto-listed company accused by short-seller Muddy Waters of accounting fraud.
In Hong Kong, KPMG said in January that it had found possible irregularities in the books of China Forestry, leading to a suspension of its shares.
STAFF SHORTAGES
Two of the biggest challenges facing the big four are staffing and the type of companies they audit.
Together the firms now employ just under 40,000 people in mainland China, Hong Kong and Taiwan. While that's a relatively high number compared to other regions, it's not enough to handle the huge demand created by the rapid economic growth of the world's most populous country, experts say.
"We are in tremendous need of experienced accounting professionals and graduating college students," said a spokeswoman for Ernst & Young, which plans to recruit 1500 new staff this year.
Source: Reuters US Online Report Business News
It's all about "how much you made when you were right" & "how little you lost when you were wrong"