Michael Rapoport (2015) reports that the big four accounting firms, which are PwC, Deloitte, EY and KPMG, in China have had a conflict with the law for failing to produce documents required by the SEC. This case shows that China does not have a platform for protecting the large let alone the small auditing companies (Frey 2014). Part of the China’s rapid growth in both technological adaption and industrial growth is enabled the accounting system and the governing laws. Transparency has been one of the major emphasis on economic develop in China. Authorities have, over a long period, dealt with economic frauds such as tax evasion and avoidance, corruption, and other corporate misconducts with indiscretion. Following the role played by the policies, Rapoport reports that since U.S.-traded companies sin China must adhere to both the Chinese accounting and GAAP accounting, increased transparency is demand at all major transactions (Frey 2014).
The responsibility to ensure that U.S.-traded companies as well other non-U.S.-traded companies adhere to ethical accounting practices, is tasked to the big four accounting companies namely Ernst & Young, Deloitte Touche Tohmatsu, KPMG and PricewaterhouseCoopers. As part of the accounting system and auditing practice transparency, the body tasked with the stock exchange of China, SEC, imposed a $2 million fine to the big four for failing to produce audit documents. With the heavy investment in China’s manufacturing industries, the U.S. accounting law is a major consideration in China’s auditing practices. In this case, it is mandated that auditing firms must produce audit reports if demanded to do so by the securities authorities in case of any accounting investigation (Gillis, 2015).
Part of these strict laws serves as China’s competitive advantage in accounting accountability. Since the Chinese foreign affairs and investment policies recognize accounting systems applied by non-Chinese-traded companies, integration of accounting laws ensures that exchange rates, investor returns, economic changes, and overall economic development factors are monitored transparently (Auld, 2014).
Generally, there are two types of auditing, internal and external, internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations, one of the role of internal auditing is compliance with laws and regulations, also including whether energy consumption reach the standard of China (Aden 2008). External auditing means the auditing activities outside of the organization, the main role of external auditing is to perform the annual statutory audit of financial accounts, and provide the opinion of whether conform to the real financial position of the company.
For supporting the research of energy consumption relate to foreign investment, environmental audit system need to be concern, due to traditional auditing system still lack of sufficient consideration of environment influences.
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