China's accounting industry must have a regulatory framework that strikes a balance between market forces and government regulation, a top official said in Beijing Wednesday.
The country's ongoing economic reform process has pressed listed companies to improve information disclosure.
China Securities Regulatory Commission (CSRC) Assistant Chairman Wang Jianxi said that "for an emerging market like China, which is also in a transition towards a market economy, we have to balance between government regulation and market forces and design the regulating system accordingly."
Wang made the call at a corporate governance seminar held by the Association of Chartered Certified Accountants (ACCA) and the China Institute of Certified Public Accountants (CICPA).
At this time, it is better that accounting practice principles are drawn up first, which will then be followed by detailed guidelines and better self-regulating to facilitate the implementation, he said.
CSRC will work together with the Ministry of Finance and CICPA to further upgrade accounting standards and market regulation.
Wang said that the sector's deregulation process will not take place overnight, although it is certain to accelerate in the future.
Chinese regulators have been maintaining a watchful eye on domestic accountants in order to avoid a home-grown Enron scandal from taking place.
Government departments have been working together to update their accounting standards, and rules and strengthen the supervision of listed firms and State-owned enterprises' (SOEs) information disclosure.
Chinese listed companies are under mounting pressure to disclose more information, such as related party dealings, said Allen Blewitt, Chief Executive of ACCA, a leading global accounting body.
Better transparency will push them to strengthen corporate governance, he said. That will also increase international investor confidence in the Chinese market.
Intermediaries like accountants and auditors play an important role in the process, but they have to be truly independent, he said.
Moreover, domestic accountants are faced with the challenge of upgrading both their expertise and ethics to become more competitive in both the domestic and global markets, he said.
Domestic accounting firms remain small in both their business scale and market share.
Compared to the big four global accounting firms Deloitte, PricewaterhouseCoopers, Ernst & Young and KPMG, which together take up more than 80 per cent market share in developed markets the top ten domestic accounting firms in the Chinese mainland only get a 30 per cent share of the local market, said CSRC Chief Accountant Zhang Weiguo.
The weaknesses of domestic accounting firms include their small business scale, poor risk-control, limited resources and networks and insufficient expertise, said Zhang.
CICPA Secretary-General Chen Yugui also said that Chinese accountants have to improve their reputation and ethical standing.
But this pace of change can only be stepped up with an improved legal and regulatory environment, he said.
CICPA is currently studying a system to check on the practices of its member accountants and a database that records any misdemeanors.
It is also working with the State-owned Assets Supervision and Administration Commission (SASAC), the State assets supervisory watchdog, to promote the function of qualified accountants in checking SOEs' financial status.
Accountants certainly have their social responsibilities and properly deal with conflict of interests, but that is closely related to the overall market environment, said Chen.
If listed companies and SOEs can practice good corporate governance, it will enable accounting firms to save costs and become really independent, he said.
(China Daily February 26, 2004)