Hong Kong Exchanges and Clearing (HKEx) has put a hold on plans that permit mainland accounting firms to audit Chinese companies in Hong Kong, due to concerns over investor protection.
The South China Morning Post
notes that the plan, proposed in August, was intended as a way to streamline financial reporting. Currently, the 57 companies that are listed in both Hong Kong and Shanghai exchanges are required to produce two sets of financial statements in order to meet the two different standards.
Under the new plan, only mainland auditors endorsed by the Ministry of Finance and the China Securities Regulatory Commission (CSRC) would be permitted to audit mainland firms listed in Hong Kong. Audit failures would be probed by the ministry and the CRSC.
Meanwhile, the Hong Kong Institute of Certified Public Accountants would not be granted the same control over mainland auditors, nor access to their working papers. Hong Kong’s lawmakers opposed the arrangement, saying it was insufficient protection of shareholders.
"This is an important issue of investor protection," reported the Post, quoting a source close to the Hong Kong's Securities and Futures Commission (SFC).
"If the companies are audited by Hong Kong accountants, the local regulators can contact and take action against them directly. If these auditors are based on the mainland, the SFC and other regulators can do nothing as we cannot enforce our standards across the border."
The Post quoted inside sources who say that the plan, first intended to be implemented in January, has now been indefinitely delayed, following concerns from the SFC that shareholder interests could be compromised.
Recent cases arising from poor disclosure standards by Hong Kong-listed mainland firms have served to increase the SFC’s concerns. These include the sports clothing maker Hontex International Holdings, which falsified information on its IPO prospectus
, and Shanghai-based Fu Ji Foods and Catering, which catered food for athletes and guests at the 2008 Beijing Olympic Games. Last October, the company went into provisional liquidation shortly after posting six months of profits, but having failed to inform investors when its business suffered from lost contracts and staff.