in China: Fascinating Similarities and Differences
Edwin J. Kliegman
AUGUST 2005 - My first stop in China, even before
visiting the Great Wall and the Forbidden City, was the
offices of the Chinese Institute of Certified Public Accountants,
whose headquarters are in a beautiful, modern building in
the heart of Beijing.
I hadn’t made an appointment and my visit hadn’t
been cleared through the Minister of Finance, but through
my guide (and interpreter) I explained that I was a CPA
visiting from the United States interested in the profession
as practiced in China.
After some pleading, cajoling, and wheedling, Liu Aiu,
director of the international department, agreed to a telephone
Evolution of Accounting in China
The Chinese Institute of Certified Public Accountants,
established in 1988 as an extension of the government of
the People’s Republic of China (PRC), licenses CPAs.
Between 1995 and 2002, the State Council required the organization
to join with the China Association of Certified Public Auditors,
the Asset Evaluation Profession, and the Certified Public
Tax Agent Profession, to place the entire accounting profession
under the same leadership.
Receiving the CPA certificate requires earning a college
degree, passing a uniform examination, completing at least
two years experience of independent auditing in China, and
becoming a member of the CICPA. CPAs are required to complete
120 hours of CPE every three years.
The Ministry of Finance oversees the activities of the
profession. The CICPA enforces the rules and regulations,
sets and implements accounting and auditing standards, administers
the uniform CPA examination, and enforces ethics and discipline
as set forth in its bylaws. The CPA examination covers accounting,
auditing, finance, taxation, and law.
In many ways, the CPA profession in China mirrors that
of the United States under the Sarbanes-Oxley Act. In the
area of enforcement of rules, regulations, standards, and
ethics, China appears to exert more control than the United
States. In the opinion of the CPAs that I interviewed, an
Enron-type disaster would not happen in China, and if it
did, those involved would be punished severely and very
The Chinese Institute of CPAs is responsible for areas
that include the following:
- Organizing national unified CPA exams;
- Preparing professional standards and rules for CPAs;
- Safeguarding the legitimate rights and interests of
- Monitoring and reviewing the implementation of CPA
professional standards and rules; and
- Conducting annual reviews of CPA qualifications and
The mission of the CICPA is serving, supervising, regulating,
and coordinating the activities of the CPA profession. It
stresses professional ethics, adhering to professional standards,
not making false accounts, and creating a professional image
of independence and impartiality.
Similar to CPAs in the United States CPAs in China conduct
audits, prepare tax returns, do management consulting, and
represent clients in disputes with the government in tax
matters. Large CPA firms work with clients on IPOs, doing
the required auditing and preparation necessary to take
a company public. In addition, they do special auditing,
such as verification of paid-in capital, net asset verification,
internal audits, and working with legal counsel on judicial
matters. All businesses require the services of a CPA in
order to complete their year-end tax reports as required
by the government.
China embarked on development of the CPA profession only
about 25 years ago, and the profession has a promising future.
The country currently has about 170,000 state-owned enterprises
and more than 2.2 million private businesses, and it is
growing by leaps and bounds. Not many CPA firms are capable
of satisfying the needs of these organizations.
Accountancy is an appealing occupation to many young people
in China. More than 500,000 candidates sit for the uniform
CPA exam each year, many of them women. CPAs are highly
regarded by the public and, as in the United States, are
considered trusted professionals.
New clients engage firms based on their reputation, and
also through introductions made from personal contacts and
recommendations. Advertising and solicitation are prohibited.
Employees leaving an accounting firm cannot “steal”
clients. Rules on conflicts of interest and independence
are strictly observed and enforced. For example, a firm
is prohibited from auditing an organization for which it
has performed write-up services.
China’s Oldest Firm: Shanghai Certified Public
There are about 2,600 CPAs in Shanghai. Unlike the United
States, which has a shortage of applicants for accounting
jobs, China has a plentiful supply of candidates. If a firm
needs 20 people for a position, 200 might apply.
In Shanghai, I had the privilege and honor of meeting with
Hui-Yong Xu, CPA. He is a founding partner of the firm Shanghai
Certified Public Accountants. He has retired from active
practice but remains a senior advisor to the firm and maintains
an active role in the profession as vice president of the
Shanghai Auditing Society, executive director of the Shanghai
Institute of CPAs, and an advisor of the Shanghai Accounting
Society. A charming gentleman, who understands English perfectly
but speaks it only hesitatingly, Xu preferred to conduct
the interview primarily in Chinese.
Shanghai Certified Public Accountants (SCPA) was the first
accounting firm established in China, as authorized by the
PRC Minister of Finance. It remains one of the few accounting
firms qualified and approved by the Ministry of Finance
and the China Securities Regulatory Administration Committee
to audit listed companies. It is also one of the A-class
accounting firms authorized to deal with assets appraisal,
as approved by the National Administrative Bureau of State
As one of the country’s largest CPA firms, SCPA has
20 partners and 160 total staff, including 62 CPAs. The
firm occupies an entire floor of the WenXin United Press
Tower, a striking new building in the heart of Shanghai
with well-appointed, modern offices and up-to-the-minute
Since it was founded in 1981, the firm has adhered to the
principle of “Independence, Objectivity and Impartiality.”
SCPA is a full-service organization and much the same as
firms of similar size in the United States. Clients include
foreign-invested companies, joint-stock organizations, publicly
listed companies, private enterprises, and state-owned enterprises.
It serves the manufacturing, commercial, transportation,
real estate, hotel, finance trust investment, and securities
sectors. The firm’s scope of service includes annual
auditing, capital verifications, profit-forecast auditing,
management consulting, asset appraisal, accounting consulting,
financial feasibility study of investment, and professional
training. Adapting to the developing economic situation,
SCPA recently established a firm, Shanghai Assets Appraisal
Company Limited, to accept trusts for asset appraisal.
The firm does not provide personal financial planning services.
On request it will accept planning engagements for business
clients, but is extremely careful not to cross the lines
that might affect its independence. SCPA places great emphasis
on the quality of operation and service, the upholding of
professional morality, and ceaseless expansion of service
Shanghai Certified Public Accountants has a working relationship
with Deloitte, and it also services specific cases and situations
for other foreign accounting firms and has reciprocal relationships
with firms that deal outside of China.
In the port city of Yichang, which has more than 300 accounting
firms, I met with the manager and a staff member of HubeiYuhua
Certified Public Accountants, Ltd. The firm consists of
five partners and about 45 staff operating in four cities,
performing audits, taxes, asset appraisals, initial registrations
of new businesses, financial statements, and business consulting.
I was told that competition for new clients is very fierce.
Here I learned that a good deal of new accounting business
in China comes from the government. When the government
wants to sell an enterprise to a private organization, a
CPA must appraise the assets. The government pays the CPA’s
fee for the appraisal, and after the business is privatized,
the business pays it back. Registering a business requires
government approval. The first step in the process is for
a CPA to prepare the necessary forms and documents, including
an appraisal of assets. Each year, a business must file
both a financial statement and a tax return. There are two
types of returns, one for service organizations, another
for manufacturing concerns. Individuals must file personal
income tax returns as well, but nowhere during my trip did
I see storefront tax preparers.
At HubeiYuhua they showed me an audit report in the final
stages of completion. A major difference between China (and
other countries) and the United States is the depth and
volume of the audit report. The full report that I saw consisted
of more than 80 pages and covered all aspects of the business.
Parts were in English because an American firm was an investor.
Expanding Market, Enormous Potential
During my trip, I learned that the Chinese accounting market
is expanding rapidly and holds enormous potential. The national
economy has been enjoying strong growth, and as the economy
grows, so does the need for accounting services. Despite
the strong competition among smaller firms for new business,
few firms can satisfy the need for the level of service
that large firms provide. The government is liberalizing
the accounting market by permitting overseas accounting
firms to set up offices and encouraging them to carry out
audits in China.
The visit to China was exciting and informative, and my
meetings with Chinese CPAs were delightful. It is fascinating
to learn that there are so many similarities of practice,
problems, and opportunities.
Edwin J. Kliegman, CPA, is the founding
partner, now retired, of Marcum & Kliegman, CPAs. He is
a past president of the National Conference of CPA Practitioners
(NCCPAP) and the founder of its Nassau/Suffolk Chapter.