Company auditors face ban on acting as consultants

PUBLISHED : Wednesday, 06 February, 2002, 12:00am
UPDATED : Wednesday, 06 February, 2002, 12:00am

Accountants would be barred from acting as both auditor and consultant to the same listed company under guidelines proposed by the SAR industry regulator.

The move follows a similar proposal by the United States accounting body in the wake of the collapse of energy giant Enron.

Hong Kong Society of Accountants president Alvin Wong Tak-wai hopes the ban can be added to the society's code of ethics within six months.

'After the collapse of Enron, it appears investors are worrying that consulting fees may cloud an auditor's judgment,' Mr Wong said yesterday.

By law, Hong Kong's 20,000 accountants - including those with the Big Five international firms - operate under the society's rules. Those who do not follow them risk penalties including being banned from practising in Hong Kong.

The Enron scandal has highlighted the potential for conflict of interest. Investor confidence in the accounting industry has been badly shaken after accounting firm Arthur Andersen - a financial adviser to Enron as well as auditor - failed to disclose the company's debt problem to investors and admitted it had destroyed documents.

Mr Wong said the Enron case had shown the need for separating auditing and consulting services. In the US, though less so in Hong Kong, it was common for listed firms to use the same accounting firm as auditor and consultant.

Despite the dual role being less common in Hong Kong, he said the SAR should bring in the new rule.

'The Enron case has shaken investors' confidence in the accounting industry, not only in the US but also other parts of the world. We have to bring in new rules to address the problem to restore investors' confidence to the accounting firms,' he said.

Some US companies' share prices fell last week due to investor worries that more firms may have accounting problems.

Last week former US Securities and Exchange Commission chairman Arthur Levitt called on auditing firms to be more independent from the corporations they were covering.

Mr Wong said the society's ruling council had agreed it would also follow another set of rules introduced by an international accounting body, which say an auditor's audit judgment of a company should not be affected by its other business relationship with the same client.

Mr Wong was speaking at a press conference called to issue new guidelines requiring listed companies to set up audit committees.

The society has suggested to Hong Kong Exchanges and Clearing that it require all listed companies to comply.

HKEx advised all companies to set up audit committees two years ago, while it intends proposing it be made compulsory in a consultation paper on changes to the listing rules.