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China to launch internal control system

China plans to create and implement a new internal control system for companies to boost operating standards and cushion the effects of any future financial crisis.

The new system, to be implemented within 10 years, will have basic rules and guidelines aimed at preventing companies from feeling the effects of the financial crisis as well as helping to raise competency levels of companies, enhance their ability to avoid risk and improve the level of operating standards.

The new system will also help drive revenue into the audit market by generating more internal control compliance work for auditors.

The Chinese Ministry of Finance (MoF) accounting regulatory department director general Lui Yuting revealed the plans to The Accountant at a Chinese accounting reform briefing held by the Institute of Chartered Accountants of Scotland.

“To implement the system, [companies] will need CPA’s to audit the whole process so it is the new emerging point for the CPA industry to grow,” Yuting said.

The MoF has now completed the first phase of the system and will start to the implement the system domestically in public companies, and then in Chinese and public companies that operate overseas.

The MoF, working in co-operation with the National Audit Office, the China Securities Regulatory Commission, the China Banking Regulatory Commission and the China Insurance Regulatory Commission, is currently training senior mangers on the new system.

Yuting confirmed the MoF’s plans to challenge the position of the Big Four in China by developing 5-10 ‘super big’ domestic public accounting firms is on track.

“We now have about 12 firms and they have already formed to the initial scale with the profits of the CPA firms now reaching CYN500m ($75m) each. Our target is to reach CYN2-3bn in five years.”

Yuting said he is confident the goal is achievable in the next five years.

The ultimate aim of the proposals is to double the size of the public accounting industry to CYN60bn within the next decade.

 

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