No more foreign auditors in China?

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ChinaThe new rules aiming to ban foreign auditors from auditing mainland Chinese companies
The Chinese Ministry of Finance issued draft rules aiming to ban foreign auditors from auditing mainland Chinese companies. The new rules would require international accounting firms to partner with domestic accounting firm to perform the audit of mainland Chinese companies. Previously international firms could apply for a temporary audit practice certificate to enter mainland China. Most likely the Big Four and other international firms will decrease their hiring in Hong Kong however increase their recruitment on the mainland for their operations there.
Impact and possible consequences of the new rules
What impact could the new rules have? Peking University Professor of Practice Paul Gillis believes that there are several possible consequences. First, the proposed rules may force a change for Red Chips – companies based in Mainland China that are incorporated internationally and listed on the Hong Kong Stock Exchange (HKSE), as well as private companies. Until now these companies were required to have Hong Kong auditors. Second, the proposed rules will threaten small US based companies which specialise in reverse mergers, the acquisition of a public company by a private company, so that the private company can bypass the lengthy and complex process of going public. ‘The Big Four mostly refuse to audit reverse mergers, and these local firms from the US pick up the work,’ said Professor Gillis. ‘Some US firms have already been banned by the PCAOB/SEC and as because they do not have mainland affiliates, I think these firms are about to be wiped out.’ He believes that consequently their clients will have a hard time finding new auditors. ‘These are small, risky reverse merger clients and no one will take the risk. Even Chinese firms,’ he said.