Accounting body fights corner
President of HK watchdog says reforms are necessary to bring city into line with international standards, but is against extreme change
The new head of Hong Kong's accountancy watchdog says it is determined to remain the key oversight agency for the city's 36,000 accountants despite a government proposal to reassign its regulatory authority to a new body.
Clement Chan Kam-wing (pictured), the president of the Hong Kong Institute of Certified Public Accountants, said reforms were on the table and necessary to bring Hong Kong's accountancy regime into line with international standards, but that extreme reform could not be countenanced.
"We agree to reform our audit regulatory regime in a bid to match international practices," Chan told the South China Morning Post. "But we will not agree to extreme reforms that go as far as those in the United States where the accountancy body abandoned all its regulatory functions."
The government plans to canvas public opinion in the first quarter of next year about major accounting reform that could result in a law change in 2015 to scrap many of the institute's regulatory functions - including its role in maintaining a register of accountants, setting standards, surveillance of accounting firms, and discipline of accountants found by it to have been guilty of misconduct.
These powers may be transferred to the Financial Reporting Council that was set up in 2006 to investigate audit failures of listed companies.
The proposal is designed to strengthen oversight of a sector in the city's financial industry that critics say seriously lags international practice.
Chan said the institute would agree to give up the powers of making routine inspections of accounting firms and agree to shift those powers to the FRC.
The institute would also agree to give up its disciplinary powers, although it did not agree that these powers should be shifted to the FRC.
"The FRC is responsible for investigations. If it is also to decide how to punish the accountants, it is like playing the role of policeman and judge in one go. There would be conflict, and it would be better to have an independent member-formed panel or organisation to decide on penalties."
A report commissioned by the council and released in October found that Hong Kong's self-regulatory system was outdated and failed to match the standards of the European Union.
This led to Hong Kong failing to secure membership of the International Forum of Independent Audit Regulators - an organisation of audit regulators.
The report noted that in the 40 markets that were examined, one or more non-accountancy bodies were established to undertake the regulatory oversight of the sector.
"As an international financial centre, we agreed we needed to reform our system to match international standards," Chan said. "But we do not necessarily need to go for the US model. Rather, we think the British or German model would be more ideal," he said.
Chan said the institute also refused to give up its regulatory roles in training, licensing, and standard-setting for accountants. In the US these functions are handled by a non-accountant body, but he said he did not agree with this.
"We do not agree with the US model as registration and standard-setting are very much an industry issue. The HKICPA has the professionals to understand what the industry needs," he said.
In Britain and Germany accounting bodies retained these functions although they were exercised under independent oversight.
"The key is to allow independent oversight on how the HKICPA carries out these regulatory functions," he said.