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Enoch Yiu

Mainland accountants will be able to audit Hong Kong-listed mainland firms from Wednesday, potentially cutting costs but raising fears investor protection may be compromised.
The proposal, first announced by Hong Kong Exchanges and Clearing in August last year, was initially scheduled to start last January.
But it was delayed by questions over how to protect investors in case of problems with mainland audits.
The deadlock was resolved after the Ministry of Finance signed a deal to help Hong Kong regulators investigate mainland auditors.
From Wednesday, the 64 H-share companies now dually listed in Hong Kong and Shanghai - including major players such as the Industrial and Commercial Bank of China and China Life Insurance - can choose to issue only one set of financial statements according to the mainland  accounting standards for both Hong Kong and mainland investors. 
Currently they need to issue two sets of statements - one based on Hong Kong accounting rules which follow international standards, and a second set based on mainland  accounting standards. 
Another 100 H-share companies which are listed in Hong Kong but not on the mainland can also switch to mainland accounting  standards instead of Hong Kong standards if they prefer. 
The 164 companies will be allowed to appoint one of 12 mainland auditors endorsed by the Ministry of Finance, instead of hiring Hong Kong accountants. 
The 12 firms listed by the ministry yesterday include joint ventures of the Big Four international accounting firms. The rules will be reciprocal, allowing Hong Kong companies that choose to list on the mainland in future to opt for Hong Kong accounting standards and auditors. 
Currently, no Hong Kong firms are listed on the mainland.
The reform was delayed after some lawmakers and the Securities and Futures Commission, which oversees the stocks and futures markets, expressed concern shareholders' interests may be compromised.
They said there was no clear mechanism for Hong Kong securities and accounting regulators to investigate or punish mainland auditors in the event of any audit failures. 
Hong Kong Institute of Certified Public Accountants chief executive Winnie Cheung Chi-woon said this concern should be removed now that the Ministry of Finance has signed an agreement with the Hong Kong Financial Reporting Council. 
Under the pact, Cheung said the council, which investigates audit failures for all locally listed companies, can seek help from the ministry to  investigate mainland auditors.
She added: 'The 12 accountants allowed to audit the Hong Kong listed H-shares are the largest on the mainland. They also have representative offices in Hong Kong.' Cheung said mainland accounting rules differed in three major areas from the international standard - treatment of  impairment charges on intangible assets, treatment of insurance funds and treatment of safety funds for risky industries such as mining. 
There are also differences in the way they handle connected transactions. 'But overall, the differences are less than 3 per cent,' she said.
Despite the reassurances, some still have concerns. Starry Lee Wai-king, an accountant who is also a legislator for the Democratic Alliance for the Betterment and Progress of Hong Kong, said investors needed to be aware of the differences between  accounting treatments. 
She was also uncertain about whether cross-border investigations would work as well as hoped. She added: 'Although the Ministry of Finance said it would provide assistance, this is a new arrangement and nobody knows if it will really work.'
In other developed markets, overseas accountants must register with the local accounting body and must agree to submit documents to local regulators when required. 
Hong Kong has not set out such a requirement. Jojo Choy Sze-chung, chairman of Hong Kong Institute of Securities Dealers, said he was concerned about investor protection. 
'If a Hong Kong listed company has auditing problems, they expect Hong Kong regulators to investigate.
'But now, if the companies are  audited by the mainland auditors, our regulators cannot go north to do investigation directly,' he said.
Albert Au, chairman and chief executive of accounting firm BDO, said the move would attract more mainland firms to list in Hong Kong. 
It would also mean Hong Kong accountants facing more competition from mainland counterparts.
'Competition is good because we would need to sharpen our skills and adapt to prosper in a competitive environment. A closed shop breeds complacency and inefficiency. 
'In the end, the beneficiaries will be clients and this can only be good for Hong Kong,' Au said.
Deadlock broken
Agreement was due to start in January this year but was delayed
The number of mainland auditors endorsed by the Ministry of Finance for use by H-share companies is: 12



Worries remain as mainland-only audits approved