An analysis of recent accounting and auditing failures in the United States on US accounting and auditing in China

Purpose – Seeks to analyze the impact of recent accounting and auditing failures in the USA on US accounting and auditing in China, focusing on the practice of guanxi – the networks of informal relationships and exchanges of favors that dominate all business and social activities in Chinese societies. Design/methodology/approach – Examines Chinese culture and uses historical precedents and parallels with Japanese culture to predict potential accounting and auditing problems. Findings – Determines that guanxi has the potential to undermine the high standards of auditor independence, audit quality, and ethical behavior to which auditors must adhere. Research limitations/implications – The review of Chinese culture and list of historical precedents is not exhaustive, and the standards are all US, which perhaps limits its usefulness elsewhere. Practical implications – A very useful source of information on Chinese business behavior as it impacts accountants and auditors. Originality/value – Enables policy makers and professional accountants to anticipate and predict how guanxi may threaten the progress made in improving financial management and reporting, and may undermine auditor independence, audit quality, and the quality of financial reporting.