Home' A Plus Magazine : July 2013 Contents Institute at 40
24 July 2013
MAINLAND PUTS ITS
NUMBERS IN ORDER
The 1990s saw a sharply rising awareness in China of the importance of
up-to-date -- and internationally recognized -- accounting standards and
In 1992, China promulgated the first Chinese accounting standard to
be based on concepts and characteristics adopted by the International
Accounting Standards Committee, the predecessor of today's International
Accounting Standards Board, as well as foreign standard setters.
As if to underscore China's emerging appeal, Cathay Pacific Airways
announced in late 1992 that it would set up a subsidiary in Guangzhou to
perform revenue accounting work.
In early 1993, China's Ministry of Finance launched a World Bank-
funded project to formulate 30 detailed accounting standards. On 1 July
1993, a main set of accounting standards -- national Accounting Standard
No. 1 "Accounting Standards for Enterprises" -- were put into effect and
were applicable to all Mainland enterprises.
Such developments quickly attracted the attention of Hong Kong
Society of Accountants members. "That time was when I started to join
international consortiums and networks and work more or less like a
middleman to explore China opportunities," recalls Eric Li, senior partner
of Li, Tang, Chen & Co. and president of the Society in 1994.
The Society and the Chinese Institute of CPAs began to work together
more closely. The two bodies had met with their Taiwan counterparts
in 1990 and jointly organized an educational symposium in Shanghai in
Later, Mainland accountants were brought to Hong Kong for training.
In one case, 40 accountants attended a four-week intensive course on
modern financial management at the Chinese University of Hong Kong
in July 1993. "The systematic learning of Western finance management
has consolidated my knowledge in accounting," Wang Yong, one of the
attendees, told the South China Morning Post.
Such activities served to bring the two jurisdictions together. "For the
first time I recognized that China was very much part of the Hong Kong
profession," Li says of his time as president. "I set up a number of panels
like a China taxation committee and organized technical exchanges
between our professional body and that of China."
Meanwhile, the opening of Mainland offices of international
accounting firms helped transfer know-how. In 1990, KPMG Peat Marwick
set up the first Chinese-foreign joint venture accounting firm. Others soon
followed. In 1993, Coopers & Lybrand and BDO Binder announced they
would launch joint ventures in China, joining Arthur Andersen, Ernst &
Young, Deloitte Touche Tohmatsu and Price Waterhouse.
Selwyn Mar, president of the Society in 1991, watched the
multinational firms enter China with some bemusement. "The big firms
spent millions of dollars, billions of dollars, developing the China market,"
he says. "In the initial period, I believe they lost a great deal of money. But
it had to be done -- the market had to be established."
However, the Mainland soon became a major avenue of advancement
for Hong Kong accountants, says Paul Chan, who formed his own firm,
Paul Chan & Partners, in 1998, later became president of the Institute, and
is now serving as Hong Kong's secretary for development.
"In the 1990s, if you were in one of the big firms and you were young
and up-and-coming, your senior partner would tell you, 'Go to China, be
stationed there for three to five years and then come back and I will make
you a partner,' " Chan says.
In 1993, the first H-share, a stock in a Mainland company that trades on
the Hong Kong stock exchange, was issued. Winnie Cheung, who was
technical director at the time, was brought in by HKEx and SFC to help
create the framework for the H-share listing in Hong Kong. "The H-share
scheme brought tremendous opportunities for Hong Kong accountants.
Our international expertise and reputations were put to good use. The
H-share market attracted global funding that helped restructure and
expand China's state enterprises and contributed to the phenomenal
economic growth of the country that we have seen today. It was a fantastic
opportunity to be involved in such a historic project," she says, looking
back at the Hong Kong profession's contribution with great pride.
It was a complex process. "The financial statements would be
prepared for the domestic market using the China standard, then Hong
Kong accountants would prepare statements in compliance with Hong
Kong or international standards for international investors," Cheung
explains. "And for any differences, the Hong Kong accountants would
create a reconciliation statement that will also be presented in the annual
report. There was nothing like it in any parts of the world."
Then there were B-shares, stocks in the Shanghai and Shenzhen
B-share markets set aside for foreign investors. The Society warned that
successful expansion of these markets would depend largely on China's
adoption of international accounting standards. "International investors
want to see much more detailed reports," Meocre Li, a Society member
and B-share expert, told The Wall Street Journal in April 1993.
In 1995, Tommy Fung, now a partner at Ernst & Young but then
working in the Society's technical department, was seconded to the
Mainland to work on revised accounting standards. "I served as a
secretary to the PRC accounting standards technical committee," Fung
remembers. "It took a while for them to get into the complete body of
standards, but they were moving in the right direction."
By 1998, China's accounting market was worth US$220 million, of
which the Big Five had established a 10 percent market share. "China is
going to potentially be the biggest market in the whole world for audit, tax
and consulting services," Philip Laskawy, then chairman of Ernst & Young,
told The New York Times.
But barriers remained. U.S. business executives pressured the World
Trade Organization to convince China to open its market. They argued to
Beijing that better disclosures would help China strengthen its banking
system by making it easier to gauge the creditworthiness of borrowers.
The Mainland had considered allowing foreign accountants to work in
China (after obtaining Chinese qualifications) since the early 1990s, and in
1994, about 100 Hong Kong CPAs registered through the Society to sit the
first CICPA examination open to non-Mainland accountants.
However, as China felt the grip of the Asian financial crisis in 1998, the
CICPA's then secretary-general Ding Pingzhun backtracked on the idea, telling
The WSJ that China's door was "already open wide enough."
The backtrack would not last very long and in the new millennium,
China continues to open its market.
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