(Yicai Global) May 5 -- Chinese regulators have shaken up auditing rules to promote fair competition in the industry after the latest scandal of Deloitte's Beijing unit and China Huarong Asset Management, the country's biggest bad debt manager.

The finance ministry, the State-owned Assets Supervision and Administration Commission of the State Council, and the China Securities Regulatory Commission jointly issued new regulations yesterday to guide state-owned enterprises and listed companies to hire auditing firms.

The change comes almost two months after Deloitte Hua Yong was fined a record CNY212 million (USD30.7 million) due to failures in assessing the asset quality of Huarong, a state-owned bad loan manager.

The new rules break apart long-term partnerships that may turn unhealthy as SEOs and listed firms will have to change their auditing firms every 10 years and the service providers need to protect their clients' information security. Meanwhile, audit partners and certified public accountants must change their clients every five years.

The mandatory switch will provide all eligible firms a fair chance to compete, ensuring audit integrity while improving quality, Li Baixing, an accounting professor at the Capital University of Economics and Business, said to Yicai Global.

Quality management of auditing firms should make up at least 40 percent of the decision done by SEOs and listed companies when choosing their service providers, based on the rules.

Officials at the finance ministry said earlier that some firms primarily value affordable pricing when making the decision of hiring auditors, which means that quality cannot be ensured, leading to vicious competition. In the next step, China will enhance supervision and inspection and seriously penalize enterprises and accounting firms that violate the regulations, the officials added.

The main purpose of the new rules should be promoting the healthy development of the CPA industry, Prof. Li said, adding that the first criterion for selecting an auditing firm should be quality, and that is one of the major highlights of the new regulations.

Editors: Shi Yi, Emmi Laine, Xiao Yi