Hong Kong-listed mainland companies that have chosen to use mainland auditing standards will be annually reviewed by the SAR's Financial Reporting Council (FRC), reports the South China Morning Post. This will affect about 17 companies, out of a total of 164 H-share firms.
The aim was to ensure that investor interests were well protected after the controversial rule change, which allowed mainland companies to choose mainland auditors, said Sophia Kao, chairman of the accounting-profession watchdog.
In December last year, the Hong Kong Exchanges and Clearing began allowing mainland accountants from 12 Ministry of Finance-endorsed firms to audit Hong Kong-listed mainland firms (H-share firms). Prior to the change, all financial statements of H-share firms had to be audited by Hong Kong auditors.
The move provided an opportunity for companies to cut costs, but raised alarm that investor protection might be compromised. With the change enforced, the reporting council would not have jurisdiction to investigate mainland-based accountants.
To ease public concern, Kao said, "We will review all the financial statements of the 17 mainland companies concerned to make sure investor interests are well protected."
The FRC was said to have signed a memorandum of understanding with the Ministry of Finance, which would help it conduct investigations if any audit failures arose, said Council chief executive Kam Pok-man.
In addition, the FRC will also review the financial statements of the 15 overseas companies listed in Hong Kong that are still using their country's auditors instead of Hong Kong auditors. Those companies are from Russia, Italy, Brazil, Canada, Japan, Britain, Luxembourg and Singapore.
The council will also review statements of newly listed companies which report profits that are significantly different from forecasts in their listing prospectus.
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