Hong Kong Accounting: A Staid Statutory Body Navigates the Winds of Change

On March 2, an extraordinary general meeting of the Hong Kong Institute of Certified Public Accountants (HKICPA) will consider three, well, extraordinary motions. First, should the Institute refund 50% of all its cash – estimated at HK$390 million (US$49.9 million) – to its more than 42,000 members?

Second, should the president and vice president be elected directly by the membership instead of by the council members choosing among themselves? And should the current CEO and Registrar be replaced by someone else who will be paid less than the incumbent’s HK$5 million compensation package?

The initiative to turn over the role of disciplining auditors of listed companies to an independent body has been moving very slowly, even though the delay is taking a toll on Hong Kong’s reputation as a major financial center

The winds of change are blowing at this once-staid statutory body charged with developing and regulating the accountancy profession in Hong Kong. Last month, the city’s Legislative Council started formal consideration of a bill that proposes to strip away HKICPA’s role of disciplining auditors of public interest companies and turn it over to the independent Financial Reporting Council, to bolster Hong Kong’s reputation for good governance.

A new Qualification Programme will be launched in June 2019, one that “offers alternative pathways and greater flexibility for students with different educational backgrounds, including sub-degree holders and non-accounting majors, to become CPAs.” And in response to technology disruption, says new HKICPA president Eric Tong, analytics, artificial intelligence, robotics and so on will become more apparent in the Institute’s continuing professional development program.  

Regulatory Change

More than a decade ago, the Institute gave up its role of investigating the audits of listed companies to the Financial Reporting Council, which was established in 2006. The move was made at the suggestion of the Institute, says Tong, who is Audit & Assurance Partner at Deloitte China’s Global Financial Services Industry Group (he is president of HKICPA for this year).

“HKICPA was an early advocate for an independent regulator of listed company auditors in Hong Kong, therefore we are keen to see the completion of this exercise,” he says. But the initiative has been moving very slowly, even though the delay is taking a toll on Hong Kong’s reputation as a major financial center – the city is ranked lower in governance than rival Singapore, which has had an independent overseer of public audits since 2004.

The government now appears to have grasped the nettle. The measure “is crucial to strengthening Hong Kong's status as an international financial center and capital market,” says Secretary for Financial Services and the Treasury James Lau. “The Bill will enhance the existing regulatory regime for auditors of listed entities, allowing it to be independent from the audit profession, thereby providing better protection to investors.”

For all of Tong’s full-throated support, however, the HKICPA is trying to shape the bill more to its membership’s liking. As gazetted, the bill broadly addresses the Institute’s worries, says Tong, but “some of our concerns remain.” One is the proposed three-fold increase in the Financial Reporting Council’s budget, to HK$90 million every year.

“Judging from our own experience in regulation, inspection and discipline, the figure seems very high considering the number of PIE [public interest entity] auditors under the purview of FRC,” says Tong. “The government needs to be more forthcoming and transparent with the funding parties, to ensure everybody is comfortable that their respective contribution is reasonable and fair.”

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