Fall 2011 issue of Horizons

Chairman’s Corner

Development of the Accounting Profession in China By Jim Castellano, CPA

While the American Institute of CPAs prepares to celebrate its 125th anniversary, it is interesting to note that the Chinese Institute of CPAs is less than 25 years old. While more than 100 years younger, the accounting profession in China is expanding and developing at an incredible pace. Yet there are serious challenges both to the profession and to companies doing business there that must be overcome. Since the founding of the People’s Republic of China in 1949, all significant economic activity was conducted by State Owned Enterprises (SOEs). Shortly after the death of Mao Zedong in 1976, the Cultural Revolution in China came to an end. At that point, China began to open itself to the outside world. Today, while approximately 150 SOEs still report directly to the central government, many have been partially privatized and other enterprises, not owned by the state, are rapidly developing in China. All of these enterprises require services of China’s public accounting firms. It is the Ministry of Finance in China that promulgates accounting standards and, as a result, has direct oversight of the accounting profession. There is little doubt that, while western CPA firms have been investing enormous resources to develop their presence in China, the Ministry of Finance prefers that one or more global CPA firms be Chinese owned and branded. Yet such firms have a long way to go to achieve the scale necessary to compete on a global basis. As such, many major Chinese firms have aligned themselves with major international networks of accounting firms as a means of achieving the

scale necessary to compete globally and to garner the support of the Ministry of Finance. Baker Tilly China is one such firm. Baker Tilly China was established in 1988 and has been ranked as the twelfth largest CPA firm in China.

Jim Castellano, CPA Chairman

Baker Tilly China is registered with the United States Public Company Accounting Oversight Board and is thus qualified to audit or participate in the audits of companies listed on exchanges in the United States. I had the pleasure of participating in the ceremony conducted at the Peoples Hall in Beijing celebrating the acceptance of Baker Tilly China in Baker Tilly International. The event, attended by high ranking Chinese government officials, including those from the Ministry of Finance and the State Owned Enterprises, clearly demonstrated the enthusiasm of the Chinese government for the development of the accounting profession in China. Challenges remain, such as establishing protocols so that the US PCAOB can effectively inspect the Chinese firms that audit US public companies. In addition, extraordinary diligence must be maintained to ensure the quality of the underlying financial information reported by the rapidly growing Chinese entities requiring audits. Please call on me if RubinBrown can be of assistance to you as you explore the opportunities to do business in China.

www.rubinbrown.com

6