Import duties – increased during a trade war – focus on goods, not services. Nevertheless, the Big Four accounting firms can still suffer from a trade war, writes Beida accounting professor Paul Gillis on his weblog. But those subtleties might not be spent on China when they are drawn into a full-scale trade war.
Services are not subject to import duties, but China has shown no qualms about punishing foreign business for the sins of their government. The Big Four are technically not American companies. The operations in China are not subsidiaries, but more like franchises owned and operated mostly by local Chinese. But they are generally viewed as American and may face regulatory crackdowns and may see an acceleration of the process of transferring major accounts to local CPA firms. Some smaller US CPA firms operate in China in ways that are technically illegal under Chinese law and would be easy to crack down on.
It would be easy for the Chinese to crack down on the Big Four. They simply need to strictly enforce their own rules. Few audits can survive a critical examination by regulators, evidenced by the high rate of audit deficiencies identified during inspections by the Public Accounting Oversight Board (PCAOB) of domestic firms. Earlier this year China temporarily banned several local firms for audit deficiencies.
The Big Four had best watch their back. The Big Four will likely also suffer from a decline in business serving US multinationals. All multinationals must carefully reexamine their global supply chains and some of the China business is going elsewhere even if this spat is settled. Even if this dispute is settled, it has highlighted the risk of overreliance on the Chinese market.
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