Proposed China audit rule may hurt investor confidence

PUBLISHED : Monday, 26 May, 2014, 5:06am
UPDATED : Monday, 26 May, 2014, 6:31am

Analysts fear Beijing's proposed rules aimed at barring overseas accountants from working on the mainland will dent investor confidence.

"International accountants have acted as a gate keeper for investors, who believe in their credibility and auditing standards," said Timothy Lo, managing director of French private bank CIC Investor Services.

Christopher Cheung Wah-fung, lawmaker for the financial services sector, said that although mainland auditing is catching up with international standards, "there are still differences. International investors like to invest in mainland companies listed in Hong Kong because they believe accountants here will defend investor interests."

"Banning Hong Kong accountants to work on the mainland would be a very bad move as it would affect international investors' confidence in mainland firms," he said.

Cheung said the proposed rules are badly timed amid the run-up to the stock through train scheme that will allow individual investors in the mainland and Hong Kong to trade stocks listed in each other's markets.

In January, a US judge ruled the mainland units of the Big Four accounting firms - KPMG, Deloitte & Touche, PricewaterhouseCoopers and EY - should be suspended from practising in the US as they refused to hand over working papers to the US regulator for investigation. The four firms plan to appeal.

Louis Tse Ming-kwong, director of VC Brokerage, said the Ministry of Finance's move to introduce new rules may be in reaction to the US action.

"It would be up to investors to decide if they would want to invest in mainland companies under such circumstances. It's not ideal as many investors rely on auditors' professional comments on the financial statement on which to base their investment decisions," he said.

Mark Konyn, chief executive of Cathay Conning Asset Management, said international auditing partnerships have disappointed investors in the past, citing several cases related to US-listed mainland companies.

"A well-known auditor is no guarantee of governance and reporting standards or transparency."