Fewer than 10 per cent of locally listed companies are reported to have complied with a stock exchange requirement that they set up independent audit committees. The deadline for compliance is less than two months away. 'I don't have statistics for this, but as a rough guess of our own clients, I would say that considerably less than 10 per cent will have already done so,' Deloitte Touche Tohmatsu partner Alfred Tang said. From January 1, the exchange requires its members to have appointed audit committees - composed of non-executive directors - to advise and independently review their financial reporting process, internal controls and the sufficiency of the audit function. Company financial results - both interim and year-end reports - will have to be approved by the audit committees before being signed off by directors and released to the public. 'Most companies are still in the observing stage, trying to figure out how to do this,' Mr Tang said. 'I'm guessing that in the next one or two months, there will be a lot of activity amongst companies to implement their committees.' One stumbling block to formation of the committees is the requirement to have at least three members - most smaller capitalisation companies have only two non-executive directors. 'I'm telling clients that they should implement a committee now and then add a third member later,' Mr Tang said. 'It is a new requirement and, as such, there will be an education process.' He said the stock exchange was operating the requirement on an 'as soon as possible basis'. 'It's still not exactly clear what penalties there may be for companies not adhering strictly to the rules right away, but they would fall under the listing rules in the revised code of best practice.' Deloitte director Richard George said appointment of audit committees would ultimately be positive for the local investment environment. It would allow Hong Kong to catch up with corporate governance standards overseas. 'It is overly optimistic to think that auditors, while not detracting from our service, can from one or two visits a year contribute a necessary level of scrutiny over businesses,' he said.
