China tightens up scrutiny of Big Four audits firms

China’s Ministry of Finance is tightening its grip on the Big Four accounting firms (Deloitte, EY, PwC, KPMG) in response to concerns about the quality of their audits.

The stricter scrutiny follows a regulatory probe into auditors and other financial service providers involved with China Evergrande, a property giant that collapsed after inflating its revenue by $78 billion.

The Ministry is demanding more documentation and asking more questions from the Big Four, particularly regarding audits of financial firms, highly leveraged companies, and small lenders in debt-burdened regions.

This intensified oversight is part of a broader effort by Chinese authorities to crack down on financial fraud and restore confidence in the country’s struggling stock markets.

The Big Four have remained silent on the increased scrutiny. However, the Evergrande case has exposed potential shortcomings in their ability to identify and flag significant issues.

Experts believe the Ministry is concerned about the vulnerability of China’s financial sector to the real estate crisis and wants to ensure a more accurate picture of companies’ financial health, including bad loan exposure and leverage.

Attribution: Reuters