Companies bill clause will not create a level playing field for accountants
As an accounting professor, I have grave concerns over clause 399 of the companies bill being debated in the Legislative Council.
It would mean that the auditors who sign the auditor's report and managerial staff engaged in the audit would be criminally liable if the auditor knowingly or recklessly omitted a required statement in the report.
Here's my main concern. Some accounting graduates will go on to work in small and medium-sized accounting firms upon graduation.
They would likely be the managerial staff stipulated in the clause, who would be involved in the audit work and whose audit reports would then be reviewed and signed off by their boss who is a chartered public accountant with a practising certificate. The provision would put these young graduates in grave risk of criminal liability. What parents would allow their children being exposed as junior accountants to such a risk? A fine of HK$150,000 may not be much but it is the criminal record that would threaten their future in their profession.
I am concerned that the provision will discourage young talent from entering the accounting profession as well as make it very hard for the profession to retain talent, to the detriment of not only the accounting profession of Hong Kong, but also the city's future as an international financial centre.
The provision has other implications.
To avoid criminal liability, auditors are more likely to perform more 'conservative' auditing, leading to a higher audit fee. Insurance companies are also likely to charge higher costs of professional indemnity insurance.
As a result, the accounting firms, particularly the small and medium-sized companies, will be exposed to higher operating costs. All these will directly affect the competitiveness of Hong Kong.
Last but not least, I would like to point out that the companies bill applies only to companies registered in Hong Kong. It is estimated that only 25per cent of listing companies in Hong Kong (in terms of value) are registered here. In other words, 75per cent of Hong Kong's listing companies, which have a larger stake in public interest, are not covered by the provision.
It is the small and medium-sized companies that are to bear the burden of criminal liability, creating an unlevel playing field. Thus, can the provision serve its intended purpose of protecting public interests? I seriously doubt it.
Judy Tsui, chair professor of accounting, Hong Kong Polytechnic University