China urges state cos to drop big four auditors on data risk

Chinese authorities have urged state-owned firms to phase out using the four biggest international accounting firms, signaling continued concerns about data security even after Beijing reached a landmark deal to allow US audit inspections on hundreds of Chinese firms listed in New York.

China's Ministry of Finance is among government entities that gave window guidance to some state-owned enterprises as recently as last month, urging them to let contracts with the Big Four auditing firms expire, according to people familiar with the matter. While offshore subsidiaries can still use US auditors, the parent firms were urged to hire local Chinese or Hong Kong accountants when contracts come up, one of the people said, asking not to be identified discussing private information.

China is seeking to rein in the influence of the US-linked global audit firms and ensure the nation's data security, as well as to bolster the local accounting industry, the people said. Beijing has been giving the same suggestion to state-backed firms for years, but recently re-emphasized that companies should use other auditors than the Big Four, the people added. No deadline has been set for the changes and replacements may happen gradually as contracts expire.


While the China-US audit deal last year was hailed as a sign that the competitive superpowers can still work together on some issues, Beijing's audit guidance is a reminder that decoupling is still proceeding in sensitive areas like SOEs and advanced technology. One risk for China is that shifting to lesser-known auditors will make it harder for SOEs to attract capital from international investors.

China's finance ministry and representatives of the Chinese offices of PricewaterhouseCoopers LLP, Ernst & Young, KPMG and Deloitte & Touche LLP collectively known as Big Four auditing firms didn't respond to requests seeking comment.