Explains why, following China‘s implementation of a market economy, public accounting firms were required to affiliate (hook‐up) with existing government or educational institutions until 1993 when partnerships and limited liability firms were also allowed. Describes the rules relating to independent accounting firms and changes which should foster their development but reports that, in fact, most firms are still affiliated. Discusses the reasons for this and the resulting problems, e.g. lack of competition and independence, low quality of service and increases in fraud, misrepresentation and under‐disclosure. Reveals that despite the 1995 exposure draft on eliminating the hooking‐up structure few de‐affiliations have taken place and identifies four problems which need solving if full de‐affiliation is to be achieved.
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