Foes unite over audit crime bill
A law to hold auditors criminally liable if they fail to declare a company's accounting problems is set to pass after the city's two largest political parties yesterday said they backed it.
The 2,000-page Companies Bill, being debated in the Legislative Council, aims to modernise the outdated Companies Ordinances.
Accountants have been lobbying lawmakers hard in the past two weeks to remove the criminal liability provision. But the bill is expected to be approved by Legco after the Democratic Party and Democratic Alliance for the Betterment and Progress of Hong Kong (DAB) told the South China Morning Post yesterday they would back it.
'Although many accountants worry about the liability, there is a public interest so we support the law change,'' said DAB legislator Starry Lee Wai-king, herself an accountant.
Paul Chan Mo-po, legislator for the accountancy sector, yesterday withdrew a proposed amendment to the bill that would have removed the criminal liability provision. He told the Post he will ask lawmakers to accept an amendment that accountants only face criminal liability if they failed to make the declaration 'knowingly' and not 'recklessly'' as stipulated in the bill.
'I agree there is a public interest issue here. If an accountant knows about the problem and does not make the declaration, they should face liability,'' Chan said.
Chan will still lobby lawmakers to vote down a provision that would make junior accountants liable. He wants only qualified accountants who have signed the audit report to face criminal sanctions.
The bill means auditors will face prosecution if they fail to disclose financial irregularities. They could also be punished for failing to declare if they were unable to obtain all the information needed to resolve any discrepancies. If convicted they would face a maximum fine of HK$150,000, but there would be no jail term.
Separately, the Securities and Futures Commission (SFC) has proposed criminal sanctions, including fines and jail terms, for sponsors of initial public offerings (IPOs) which fail in their due diligence.
Auditors and sponsors have come under the spotlight recently after several companies were found to have accounting problems after listing.
The High Court last month ordered sport fabric maker Hontex International Holdings to pay back more than HK$1 billion to investors for overstating its revenue and profit in the three years before issuing its listing prospectus in 2009.
However, even with support secured for the bill, there is little hope of a quick resolution as three radical democrats continue filibustering attempts to delay the vote.
'Our target is not the Companies Bill but we will make sure it will not be voted on until next week,' said People Power lawmaker Wong Yuk-man.
Brokers have complained that the filibuster has hurt investors' interests.
'The law change will ensure accountants perform their duties,'' said Christopher Cheung Wah-fung, chairman of Christfund Securities. 'The lawmakers should abandon their filibuster.'
The bill is already having an effect. Listed building materials distributor E. Bon Holdings said yesterday its auditor Grant Thornton had resigned over two outstanding accounting issues in its annual report.