China-US standoff may help Hong Kong auditors in lobbying efforts

Hong Kong auditors could benefit from a stand-off between Beijing and Washington that prompted mainland regulators to draw up plans to ban foreign accountants from scrutinising the books of listed Chinese companies on national security grounds, say industry players.

Finance officials from Hong Kong are lobbying Beijing for an exemption from the proposed rules that would require one of the 100 mainland accounting firms to lead the audit of any Chinese firm listing overseas. Their overseas partner accounting firms would be responsible for signing the books but would not be allowed to send staff to the mainland for audit work under the new rules, triggering fears of job losses for the city's auditors.

The Ministry of Finance has indicated special treatment for Hong Kong accountants could be possible as it would not "close the gate" on Hong Kong auditors and would be willing to listen to views from Hong Kong and Macau.

Secretary for Financial Services and the Treasury Chan Ka-keung, regulators and lawmakers from the accountancy sector will meet ministry officials in Beijing next week.

Susanna Chiu, former president of the Hong Kong Institute of Certified Public Accountants, said Beijing could consider an exemption under the Closer Economic Partnership Arrangement (Cepa) between Hong Kong and the mainland.

"It's an effective tool to allow Hong Kong-based accountants and other professionals to contribute to the country," she said.

The ministry proposed the new rules last month following a US court ruling in January that bars Big Four accounting firms' mainland units - Ernst & Young Hua Ming, Deloitte Touche Tohmatsu, KPMG Huazhen, and PricewatershouseCoopers Zhong Tian - from practising in the US for six months for refusing to hand over to US regulator Securities and Exchange Commission (SEC) audit papers as part of an investigation into some mainland firms listed in the United States.

The Big Four appealed against the ruling and argued that mainland secrecy laws treat audit papers as state secrets. The ministry's proposed rules reiterate that auditors cannot take audit papers out of the mainland.

Yesterday the SEC said it would give the four firms another 90 days to submit a joint affidavit, with the new deadline now set at September 19. The SEC said the extension would "facilitate the parties' continued settlement efforts … while briefing the appeal would present challenges, given the breadth, complexity, and sensitivity of the issues involved."

Hong Kong Institute of Certified Public Accountants president Clement Chan said the extension showed there was no quick fix to the US-China stand-off on the issue, which could be good for Hong Kong auditors.

"This may lead to more mainland firms preferring to list in Hong Kong," he said. "In addition, while the US stands firm, Hong Kong has showed it is open and willing to work together with mainland partners' staff in auditing the companies listing here.

"Hong Kong is part of China and local accountants have contributed to the country over the past two decades in auditing H-share companies. The ministry can have confidence in Hong Kong."