Hong Kong accounting firms will need to diversify out of their dependence on auditing revenues after a rule change that relieves mainland companies from an obligation to use their services.
Auditing now represents more than 60 per cent of all accounting firms' business, a dominant contribution due in part to a stock- exchange regulation that required mainland companies seeking initial public offerings on the local market to appoint Hong Kong-based accounting firms to act as listing auditors as well as conduct annual audits after their listings.
But effective last month, the rule was changed, and the 164 Hong Kong-listed H-share companies no longer need to hire Hong Kong firms to do their annual audits, if their books are audited by a mainland firm. The mainland auditor must be among a list of 12 firms approved by the Ministry of Finance.
So far only Tsingtao Brewery has decided to use only a mainland auditor to audit its books. Other big players, such as the Industrial and Commercial Bank of China, the Bank of Communications and China Life, have not yet announced whether they plan to use only a mainland auditor.
'I do not think all 164 mainland firms will change to mainland auditors immediately, as some would like to take a wait-and-see approach to see how international investors respond to the new rule,' said Hong Kong Institute of Certified Public Accountants president Philip Tsai Wing-chung.
HKICPA is the regulator responsible for licensing the 32,000 accountancy firms in the city.