Mainland companies listed in Hong Kong are now free to file financial statements signed off by mainland auditors only.
What does it mean for investors?
You don't have to wait for an accounting scandal to find out. Just look at the way the brave new accounting regime was 'unveiled' last week and you will get the idea.
Our transparent and publicly accountable regulatory regime is getting murkier by the day.
The so-called convergence of accounting rules and practices between Hong Kong and the mainland, which has been a subject of heated debate for more than a year, was announced in the form of a 22-page consultation conclusion released by the Hong Kong stock exchange on December 10.
Given its significance and potential for controversy, one would have expected a press conference or briefing by at least one of the five regulators involved in the reform to explain what mechanism is being put in place to address investors' concern about a mainland accountancy regulatory system that they have little knowledge about and even less confidence in.
Yet there was none.
The Financial Reporting Council (FRC), whose job is to investigate any wrongdoing in audited reports of companies listed in Hong Kong, said nothing. The Securities and Futures Commission, whose job is to ensure a fair market, said nothing. And there was also not a word from the Financial Services and the Treasury Bureau.
When asked by the media about the reform, they all cited some memorandums of understanding signed by the relevant Hong Kong authorities with the Ministry of Finance.
What exactly are these memorandums of understanding?
A member of the public without privileged information or access will not be able to investigate.
A search on the websites of two signing parties, the FRC and the Hong Kong Institute of Certified Public Accountants (HKICPA), proved fruitless. (The HKICPA is empowered by law to discipline accountants based on FRC findings.)
In a consultation paper on the new regulatory regime issued by the Hong Kong stock exchange in September last year, it says: 'If the Hong Kong regulators have information on possible audit firm misconduct ... the FRC may seek assistance from the ministry and China Securities Regulatory Commission to investigate the matters and advise the Hong Kong regulators of the outcome.'
Any wrongdoing will be punished by the two mainland regulatory bodies because the HKICPA and the FRC have no jurisdiction across the border.
While it shed some light on the issue, a consultation paper is certainly not an official source for such a significant regulatory regime change. Besides, one of the accords was signed a year after the consultation and many questions remain unanswered.
Will the Ministry of Finance provide regular updates on the number of complaints, investigations and convictions, like the FRC?
Likewise, will the ministry hold public disciplinary hearings as well as announcing its disciplinary actions and the reasons behind them, as does the HKICPA?
Will the mainland ministry have to explain to our regulators in the event that they decide not to proceed with a case?
The FRC did not return any calls, while HKICPA's chief executive, Winnie Cheung, said important matters such as procedures, time frames, access to audit papers and disclosure were clearly set out in their memorandum of understanding with the ministry. However, she could not provide any details.
A search on the Ministry of Finance's website for guidelines to its disciplinary system led to a paper on the issue on the webpage of the Supervision and Inspection Bureau, which is responsible for regulating accountants.
The paper says punishment of malpractice has been hampered by the 16-year-old Accounting Law, which is significantly outdated and ineffective.
The law is vague in defining malpractice, specifies no penalty for different wrongdoings, carries no criteria on issuing warnings, suspensions or disqualifications, mentions no monetary penalties and contradicts the Securities Law and many others.
A revision was proposed in 2001 and submitted to the State Council this year, but no implementation date has been announced.
The website also carries a dozen show cases. The only accountant-related case is a 20,000 yuan (HK$23,300)fine imposed on a Shanghai audit firm that failed to discover a 173 million yuan loss in its state-owned client because 'the meagre 20,000 audit fee made a thorough audit impossible'.
I am giving this detailed account not to justify my pay. It is about the opacity that is creeping into our regulatory system.
What kind of investor protection and regulatory credibility are we talking about when there is not even an official source on the new regulatory framework's basic information, not to mention the more complicated matter of redress.
While I can understand the reticence of the mainland authorities - opacity is their stock in trade and an integral part of Beijing's culture - the failure of our regulators in providing basic information is unacceptable.
Is it because everybody is rushing to clear their in-trays to make time for really important things such as unwrapping Christmas presents? Or is it because nobody wants to be closely associated with the policy change loved by Beijing, knowing that it opens up a can of worms?