The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) is an economic agreement between the government of Hong Kong and the Central People's Government of the People's Republic of China. Signed on June 29, 2003, it is a free trade agreement that allows qualifying products, companies and residents of Hong Kong preferential access to the mainland Chinese market.
Cepa no help as Beijing set to ban city's accountants
Brokers already at a disadvantage under cross border pact, now it is the turn of auditors as SFC wins 'state secret' ruling
First brokers, now accountants. Its been 10 years since the Closer Economic Partnership Arrangement (Cepa) was introduced, but the mainland market seems to be as elusive as ever for Hong Kong professionals.
With a Hong Kong court ruling that Ernst & Young cannot use the "state secret" clause to withhold information on mainland businesses from the local regulator, it may be sliding further away.
It is feared the verdict will prompt the mainland's Ministry of Finance to speed up its audit reforms, which propose to bar the city's accountants from plying their trade across the border.
The Court of First Instance on Friday rejected EY's plea that it could not hand over to the Securities and Futures Commission the auditors' working papers relating to mainland listing candidate Standard Water as they constituted a "state secret".
Joseph Tong Tang, executive director of Sun Hung Kai Financial, said this may prompt Beijing to push ahead faster with its new audit rules to prevent overseas regulators from accessing information on mainland companies and individuals.
"This is why foreign accounting firms will be restricted from working on the mainland in future," said Tong, referring to the 10 new rules proposed by the Ministry of Finance.
The rules, out for consultation until the end of this week and to be implemented later this year, require international accounting firms to team up with one of the 100-odd mainland accounting firms to perform audits on Chinese companies.
The new rules would also prohibit international accounting firms from sending their staff to the mainland under temporary licences, spelling doom for Hong Kong accountants. Global accounting firms are likely to scale down their hiring in Hong Kong but increase hiring on the mainland as a result.
The news of the proposed changes, reported by the South China Morning Post last Monday, has shaken up local accountants and those training to enter the industry.
"When I joined the accountancy industry three years ago, I thought it would be a good career move," said a young city accountant, who did not want to be named.
"The fast-growing mainland economy, I thought, would bring more opportunities for big accounting firms in Hong Kong that deal with customers across the border."
The accountant, who has been working at the Deloitte Hong Kong office for three years after getting a degree from Britain, said: "It's unfair competition as we are losing out to junior auditors on the mainland, not because of the quality of our work, but because of Beijing's discriminatory policy."
During three years in the profession, almost half of his time has been spent on field audits of factories across the border - a practice that will become a thing of the past if the proposed rules are enacted.
Hong Kong Institute of Certified Public Accountants president Clement Chan said the institute and the city's government are in talks with the Ministry of Finance, urging Beijing to keep the interests of Hong Kong accountants in mind.
"Hong Kong is part of China. We want central policies to benefit both Hong Kong and mainland accountants," Chan said, adding it would be better if Beijing allowed Hong Kong accountants to work with their mainland counterparts even if it makes it mandatory for international firms to team up with mainland firms for audits.
Chan said if Hong Kong accounting firms cannot send their own staff to the mainland, it would be difficult for the Hong Kong accountants to work on the mainland.
Not many Hongkongers can obtain the China Institute of Certified Public Accountants qualification to work on the mainland as the examinations are conducted in simplified Chinese.
This is why Cepa exempts Hong Kong accountants from four of the six exams needed to become a member of the institute.
Still, only 152 out of 35,000 qualified accountants in Hong Kong have passed the tests so far.
Christopher Cheung Wah-fung, lawmaker for the financial services sector, said Cepa has similarly failed to open the doors of the mainland market for Hong Kong brokers.
"Although there have been several rounds of Cepa promising Hong Kong brokers and financial firms the chance to apply for a licence, no Hong Kong firm has managed to get a licence or to set up joint ventures on the mainland," he said.
"In contrast, scores of mainland brokers and fund houses have set up shop in Hong Kong under Cepa."