Opinion | Mainland audit rules benefit its accountants, not the country

The Ministry of Finance's plan to ban overseas auditors from working on the mainland, in order to prevent their working notes being taken out of the country, is a move likely to cause more harm than good.

As the Post first reported last week, the ministry is consulting until the end of this week on the implementation of new rules later this year that would ban international accounting firms from working alone on the mainland for companies looking to list overseas, including Hong Kong and the US.

Instead, they will have to team up with one of 100 or so mainland accountancy firms and let the mainland partners' staff do all field audits.

While Beijing said the reform was aimed at clarifying the roles of international and mainland auditors, the real reasons for the move may be related to recent court cases and a push by international regulators for access to auditors' papers to aid their investigations of problematic listings.

On the mainland, a "state secret" can range from missile plans and politically sensitive information to grain harvest results, students' examination papers and auditors' working notes. It is therefore a crime for accountants to hand their handwritten notes or other data to overseas regulators, with a breach leading to a fine, imprisonment and potentially even capital punishment.

Overseas regulators and courts think differently. After a 22-month legal battle between the Securities and Futures Commission and accounting firm EY, Hong Kong's Court of First Instance ruled on Friday that EY could not use the state secret clause as a reason for withholding papers requested by the SFC.

In January, a US judge ruled that the mainland units of the "Big Four" accounting firms - PwC, KPMG, Deloitte and EY - should be suspended from practising in the US because they also cited state secrets in refusing to hand their working papers to the US regulator. The Big Four plan to appeal.