The society of accountants says a seven-year rotation is fairer to smaller firms and is in line with international practice The Hong Kong Society of Accountants (HKSA) has rejected a proposal by a government committee that lead auditors at listed companies be changed every five years, instead preferring a rotation period of seven years. HKSA president Roger Best said a five-year rotation would put a heavy burden on small accounting firms and seven years was in line with international standards. 'It would be quite difficult for some small accounting firms to rotate their lead auditors for clients every five years as they have a limited number of partners,' Mr Best said. 'The International Federation of Accountants has also decided a seven-year rotation is appropriate, and the HKSA considers Hong Kong should follow this international standard.' The United States required lead auditors to be rotated every five years after accounting scandals at companies such as Enron, WorldCom and Tyco wiped out billions in shareholder value. The scandals led to drastic reforms in the US, which also included the establishment of an oversight board to regulate accountants. Hong Kong has had its share of accounting scandals as well, such as Euro-Asia Agriculture Holdings, which allegedly inflated its revenue by a factor of 20 in the four years leading up to its 2001 main-board listing. This prompted the government and accountants to recognise the need for reform. The five-year rotation proposal is one of several corporate governance reforms suggested by the standing committee of the Company Law Reform Review Committee last year. The consultation period has ended and the results are expected to be announced later this month. Mr Best said the HKSA agreed with the concept of rotating auditors but not the time interval. The society has included a seven-year rotation requirement in its recently published ethics standards. He believed the government would accept the society's counter-proposal. A government spokesman said the government would form its view on the issue after the consultation results were reviewed. Hong Kong Institute of Directors chairman Herbert Hui Ho-ming said there would not be much difference between changing auditors every five or seven years. 'As long as there is a rule to require companies to change their lead auditor partner on a regular basis, it would help prevent the relationship between the auditor and the companies from becoming too close,' Mr Hui said. 'The rotation rule is thus an important measure for ensuring the independence of an auditor.' Other reform items on the agenda include ending self-regulation by the HKSA and setting up an independent investigation board to oversee accountants. Mr Best supported the idea but said accountants should not pay for the new body to ensure its independence. He believed the Securities and Futures Commission, Hong Kong Exchanges and Clearing and the government should share the cost. Some respondents in the consultation said listed companies should also share the cost of an independent investigation board, but Mr Hui rejected the idea. 'The cost of accounting regulation should definitely not be passed onto the companies, given that Hong Kong must keep costs down for companies to do business here,' he said.