China seeks consolidation in accounting industry

China is seeking to consolidate its accountancy industry, amid a spate of financial scandals that have reduced investors’ confidence in mainland companies listed overseas, the Financial Times reported. The finance ministry said large- and medium-sized Chinese firms should select from only a small group of approved auditors with established reputations, including the ‘Big Four’ accountancies, KPMG, Ernst & Young, PwC and Deloitte. Recently, dozens of Chinese companies, such as Sino-Forest (TRE.TSX) and Longtop Financial Technologies (LFT.NYSE), have been targeted by short-sellers alleging that auditors failed to spot fraudulent activity. However, the new government guidelines may not be a direct response to those issues, but instead, could be part of the 2009 reforms to improve Chinese auditing standards and boost national accounting firms. Paul Gillis, an accounting professor at Peking University, warned that one of the reiterated guidelines requires Chinese companies to select accounting firms that can protect national economic information.