Hong Kong’s new audit regulator should exclude industry practitioners for international recognition, says FRC

Hong Kong’s proposed independent audit regulator needs to exclude practitioners from the audit industry in order to meet international standards and be in line with major financial centres, top officials from Hong Kong’s Financial Reporting Council said on Thursday.

Hong Kong doesn’t have an independent audit-industry regulator, which puts it behind other financial centres such as New York, London, and Singapore, said John Poon, chairman of the Financial Reporting Council (FRC), at a press briefing on Thursday.

The city’s government is aiming to introduce an amendment bill to the Legislative Council in the 2016-2017 legislative session, which could make the FRC the independent audit regulator with more responsibilities.

The FRC currently only conducts investigations into possible auditing irregularities in relation to listed entities in Hong Kong. Meantime, the Hong Kong Institute of Certified Public Accountants (HKICPA), an industry organisation, has undertaken more responsibilities such as registration, inspection, and enforcement or discipline of audit firms.

“Assuming that the future Council will comprise of non-practitioners only, the [proposed] regime will enable Hong Kong to be eligible for membership of IFIAR (the International Forum of Independent Audit Regulators) and be recognised for regulatory equivalence with the EC (European Commission),” said Poon.

IFIAR is a global organisation for independent audit regulators and focuses on inspections of auditors. It currently has 51 members. EC equivalence is a recognition the EC gives to a country or jurisdiction whose audit regulatory regime complies with its requirements. It now has 50 jurisdictions worldwide, including China.