The Hong Kong Society of Accountants has signed a provisional agreement with the stock exchange that seeks to clarify oversight of auditors in a move aimed at defending the society's regulatory role in disciplinary cases. The memorandum of understanding follows calls for an external regulator to discipline auditors following cases of questionable accounting revealed in the aftermath of the Asian financial crisis and a worldwide spotlight on audit integrity following the collapse of United States energy firm Enron. Under the memorandum, the society remains the regulator of auditors serving listed companies, but Hong Kong Exchanges and Clearing and the Securities and Futures Commission (SFC) will conduct preliminary reviews, according to society president Alvin Wong Tak-wai. Should either regulator discover accounting or auditing problems they would refer them to the society for further investigation. The proposal aims to formalise an arrangement that in 1998 saw the exchange refer 11 cases of alleged false accounting to the society for further action. Mr Wong said the society should remain the sole regulator of auditors but agreement with the exchange would streamline operations between the two bodies. Revelations of poor accounting have shaken confidence in the accountancy profession, while some analysts have argued the SFC rather than the society should oversee auditors for listed companies. Mr Wong said six of the 11 cases referred by the exchange had been dropped while five were still under investigation. He refused to disclose which cases had been cleared but the investigations included audits of Cosco International Holdings, GKC Holdings and Guangnan (Holdings). Last month, the SFC referred to the society an alleged audit failure by Arthur Andersen, the firm embroiled in the Enron case, stemming from the listing prospectus of JW International Holdings. Andersen said it did nothing wrong in the JW International case. Mr Wong said the society was reviewing the case and would make no further comment. The society is considering an amendment to its operating ordinance that would make its disciplinary process more transparent. The move follows talks with members after pressure to make the profession more accountable and subject to external scrutiny. Under the proposed law change, the society will conduct the final stage of a disciplinary hearing into alleged accounting failures in public rather than in private, as has been the case. The rule change would see the disciplinary committee staffed by three accountants and two non-accounting members from the public. 'These measures would help to improve transparency and enhance the self-regulatory role of the society,' Mr Wong said. He denied the reforms were a reaction to the Enron collapse as they related mainly to accounting problems revealed by the Asian financial crisis. 'Enron is more an individual incident and its impact is more on the United States than in Hong Kong,' Mr Wong said.