Auditing fees in spotlight

PUBLISHED : Monday, 08 April, 2002, 12:00am
UPDATED : Monday, 08 April, 2002, 12:00am

The Government is considering amending the law to force Hong Kong companies to disclose how much they pay their auditors.

The move is among central proposals under consideration as part of a comprehensive overhaul of the financial reporting disclosure requirements in the Companies Ordinance.

Companies registrar Gordon Jones said: 'We want to replace the existing accounts disclosure requirement with a new reporting framework which will meet the needs of the modern world and match international practices.

'We also want to add more corporate governance-related measures into the Companies Ordinance.'

The role of auditors has come under scrutiny since the bankruptcy of United States energy firm Enron.

Many accountancy firms also provide consultancy services to the companies they audit, which critics say compromises their independence as auditors.

US companies must now disclose how much they pay their accountants in audit and consultancy fees.

However, Mr Jones said Hong Kong's proposed rule change was not related to Enron. It had been under consideration for a long time as a means of enhancing transparency and corporate governance.

'Since the Asian financial crisis in 1998, there has been increasing pressure to bring in reforms to enhance corporate governance in accounting practices,' he said.

Auditing problems surfaced at several SAR-listed companies during the Asian crisis, prompting the Government and the Hong Kong Society of Accountants (HKSA) to consider reforms.

A joint working group of government officials and HKSA representatives has been set up to review the accounting and auditing provisions of the Companies Ordinance.

The ordinance sets out commercial practices and disclosure requirements that all Hong Kong companies - privately held or listed - must follow.

Another key proposal is to eliminate some of the accounting requirements in the law and rely more on standards issued by the HKSA.

Mr Jones said revamping the ordinance's 10th Schedule - which sets out all the requirements for financial and profit and loss account disclosure - was one of the group's major topics.

One radical suggestion was to abandon the 10th schedule altogether as many of its provisions overlapped HKSA standards.

'This would avoid duplication with the rules of the HKSA, while it would also allow the accounting requirements to become more flexible,' Mr Jones said.

Standards issued by the accounting industry regulator can be amended more quickly and easily than the law.

'The HKSA has worked out a lot of reforms to strengthen its self-regulatory role in recent years,' Mr Jones said. 'Many of the rules issued by the HKSA are similar to, if not better than, international accounting standards. We could rely more on the standards issued by the HKSA.'

However, the law would need to retain some accounting-related provisions, especially those involving a conflict of interest for the HKSA - as in the case of auditors' fees.

Mr Jones is the most senior government official sitting on the working group, chaired by HKSA council member Roger Best.

The group will meet once a month.

Mr Jones said the group would study the accounting-related laws of the US, Singapore and Australia, to find out the differences between laws and those of Hong Kong.

'We need to ensure Hong Kong does not lag behind other jurisdictions,' he said.

If the review found out there are a lot of differences, the working group would suggest to change the law.

He believed it would take at least a year before the group could submit detailed proposals to the Government.


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