China syndrome

The Chinese want to develop their own global accounting firms. The Big Four
are recruiting thousands of staff in China. China is adopting international
reporting standards. Both the ACCA and the ICAEW have become recognised training
bodies in China.

Accountancy is all China, China China right now – and few other subjects seem
likely to topple the superpower from its position as the issue most likely to
determine the future of the profession.

But while the big firms, professional bodies and business all ponder how to
make a killing in the burgeoning superstate, perhaps there is a more pertinent
question to be asked. What effect might accountancy and audit have on China?

Could they make a difference, not just in terms of improving China’s ability
to sell its products and services abroad, but in bringing about change to the
country’s politics too? Could they, in fact, contribute to the democratisation
of China?

On the face of it, this might seem like an absurd question. Surely no one
really imagines that just adding up the numbers will bring about democracy in a
totalitarian state?

But it’s worth considering what accountancy and audit actually stand for.
They are all about transparency and accountability – not values typically
associated with a totalitarian regime, but undoubtedly inherent within
democratic politics.

The question hasn’t been ignored by some in the profession who are heavily
involved in providing services in China. Allan Blewitt, chief executive of ACCA,
believes that western-style accounting and audit will inevitably contribute to
democratisation. ‘A non-democratic structure doesn’t like transparency, but the
introduction of international standards brings an inevitable commitment to

‘If you take a long-term view, it has to be one of those long-term trends
that contributes to democratisation in China.’

It’s been noticed at other levels too. Howard Levene, senior partner at
Silver Levene, one of the few small firms that has developed business in China,
has witnessed the enthusiasm to adopt western rules first-hand.

‘The response we have had is a passionate desire to adopt western standards
and that must be because they want to adopt democracy.’

He notes that openness and accountability are values present in both
accounting and democracy. ‘The two are inextricably intertwined,’ he says.

The embodiment of western values will have to accelerate if, as reported in
the press last week, Beijing really wants Chinese accounting firms to follow
local companies abroad to provide the audit services they require.

This view is apparently driven by official discomfort that while Chinese
companies have listed overseas, home-grown audit firms have not been able to tag

Of course, servicing the needs of a domestic company with a foreign listing,
especially if it was in the UK or the rest of Europe, would mean the full
adoption of international accounting standards. The audit companies would have
to satisfy the full panoply of western regulatory requirements and face the full
glare of western-style investor and press scrutiny. A willingness to do that
could very well result in those values finding their way back into China itself,
and their full incorporation into Chinese civil society through business

Beijing cannot be unaware of this and yet the authorities seem unfazed, even

Blewitt says: ‘As in most things they take a very long-term view and their
judgements are pretty measured. I would be astonished if the government had not
considered this, and I think they have decided it’s a long-term development that
can be managed on a long-term basis.

‘Philosophically it’s possible that a lot of accountants and auditors don’t
realise that they are part of a long-term process that is happening in China.’

Though the events in Tiananmen Square seem some way in the past now, and this
year is the 40th anniversary of the launch of the Cultural Revolution, don’t
expect radical change in Chinese politics any time soon.

‘I wouldn’t be so optimistic as to say it will be overnight, but they are
started on a path that will be difficult to turn back on,’ concludes Blewitt.

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