( Financial Times ) -- Foreign auditing firms will have to appoint a Chinese national as their chief partner in China as part of a sweeping overhaul of the country 's accounting industry . The regulations , unveiled on Thursday , are aimed at localising the mainland operations of foreign auditing firms , but they also provide for a lengthy transition period and wiggle room to limit controversy over the changes . Chinese auditing standards have come under fire over the past year after a number of fraud allegations against Chinese companies listed in overseas markets . The restructuring of the China operations of foreign auditing firms , including the `` Big Four '' , threatened to fuel concerns by forcing them to replace all of their foreign partners with Chinese partners . Beijing has tried to allay such fears , however , by giving foreign groups time to adjust . Up to 40 per cent of their partners in China will be allowed to continue operating without Chinese qualifications this year , the finance ministry said . That cap will then be reduced to 20 per cent by the end of 2017 . `` They have made huge concessions here to try to have a smooth transition , '' said Paul Gillis , a professor of accounting at Peking University . The Chinese joint venture agreements of the four biggest accounting firms -- Deloitte , Ernst & Young , KPMG and PwC -- start to expire this year and Beijing could have imposed the rule changes as soon as they come up for renewal . `` The normal situation in the world is that accounting firms must be owned by locally qualified accountants . That is the case in most countries in the world . China is actually being more open to non-qualified foreigners participating in their practices , '' Mr Gillis said . Nevertheless , the restructuring will pose a challenge for foreign firms . Given how young the auditing industry is in China , they have few local employees who are ready to be senior partners . The restructuring announcement comes a few days after US officials said that China was considering a compromise on another contentious issue : joint US-China audit inspections . After the rash of accounting scandals at Chinese firms , the US government had asked Beijing to open its doors to the US body that oversees the auditors of publicly listed companies . James Doty , chairman of the US Public Company Accounting Oversight Board , said last week that China might agree to allow it to observe the audits of Chinese companies listed in the US . In a reminder of the concerns surrounding the Chinese industry , the US Securities and Exchange Commission said on Wednesday that it was investigating a client of the Chinese arm of Deloitte on suspicion of accounting fraud . The SEC also filed an administrative action against Deloitte for failing to provide audit documents related to the company -- something which Chinese regulators have barred it from doing . © The Financial Times Limited 2012 .
Foreign auditing firms will have to appoint a Chinese national as their chief partner in China . The regulations aim at localising mainland operations of foreign auditing firms and limiting controversy . Over the past years , China saw fraud allegations against Chinese companies listed in overseas markets .