Legco split on criminal liability
Lawmakers have expressed mixed views on whether accountants should face criminal liability for failing to declare a company's financial problems in audits.
The 2,000-page Companies Bill, tabled last Wednesday in the Legislative Council, aims to modernise the outdated Companies Ordinances, which was first written in 1932. Yesterday's debate in Legco will continue today before it goes to a vote.
The government proposes auditors face criminal liability if their accounting reports failed to include a declaration that the financial statements were materially not in agreement with the auditor's own records. They would also face criminal liability if they failed to declare they could not obtain all the information or explanations needed for the audit.
However, the maximum fine for criminal liability would be HK$150,000 - and there would be no jail term.
Chan Kam-lam, a legislator from the Democratic Alliance for the Betterment and Progress of Hong Kong, said his party supported the government adding criminal liability.
'The accountants are gatekeepers in our financial market as regulators and investors rely on their audit reports,' Chan said.
'However, we supported waiving liability for junior accountants.'
Auditors have been in the spotlight in recent months after the Financial Reporting Council put 13 listed companies on watch for alleged auditing problems.
Chan said the law change would hopefully improve auditing standards.
The Democratic Party's Albert Ho Chun-yan also supported criminal liability as an important element in safeguarding the interests of investors.
However Paul Chan Mo-po, legislator for the accountancy sector, has proposed amending the bill to remove criminal liability.
If lawmakers vote for the criminal liability clause, he would ask that it only apply if they did not make the declaration knowingly.
'Criminal liability would mean the accounting professionals would be banned from the accountancy sector forever,' Paul Chan said in the Legco debate yesterday.
He said that under the current government proposal, junior auditing staff would also face criminal charges, a scenario that was too harsh for inexperienced accountants.
Audrey Eu Yuet-mee of the Civic Party said it supported Paul Chan's amendment. 'My daughter is working in the accounting sector. As a junior accountant she is not yet qualified, so she and others may also be sent to manage small projects or handle audits in the remote areas,' Eu said. 'It would be unfair for them to face criminal liability as they are not yet qualified and do not have sufficient experience.'
Although the criminal liability proposal has yet to be passed by lawmakers, it has already prompted auditors to make some declarations.
Several companies issued statements last week indicating their auditors had concerns in some areas.
They included listed building materials distributor E. Bon Holdings, which on Friday said it was working closely with its auditors to finalise two outstanding issues, including the estimated provision of inventory and the recoverability of unpaid customer bills.