Legislators say that with so many accounting scandals, the new investigative body may struggle on $10m a year Legislators are concerned that the low annual budget sought for the government-proposed accounting regulatory body would turn it into a toothless tiger. The Legislative Council's financial affairs panel today will discuss the consultation paper released last week which seeks $10 million a year for the Financial Reporting Council, which will include an independent Audit Investigation Board. The board, to be headed by a full-time chief executive and staff, will replace the Hong Kong Institute of Certified Public Accountants (HKICPA) as the body responsible for looking into audit scandals involving listed firms and collective investment schemes. The new setup aims to avoid conflicts of interest and speed up investigations. Carlson Tong Ka-shing, a KPMG partner in charge of audit for China and Hong Kong, said the HKICPA had been hampered in its investigations because it lacked authority and money. In contrast, he said, the proposed board would have the power to interview non-accountants and access corporate books and records. 'The board will have teeth to carry out its duty, so it will not be a paper tiger,' he said. However, legislator Sin Chung-kai, the Democratic Party's economic policy spokesman, said the proposed low budget could hamper its work. 'The annual operation cost of $10 million is unlikely to be enough for investigating so many accounting scandals,' said Mr Sin, who emphasised that his party supported moves to enhance the regulation of accountants. 'The government should review it from time to time to see if it would need to increase the budget for the investigation board.' His view was echoed by legislator Chan Kam-lam, economic affairs spokesman for the Democratic Alliance for Betterment of Hong Kong: '[We have] no problem with the accounting reform plan, but we are worried that the low budget would affect its work.' As proposed by Frederick Ma Si-hang, the Secretary for Financial Services and the Treasury, the council will have a reserve of $10 million and annual expenses of $10 million in its first three years of operation - equally funded by the government, the HKICPA, Hong Kong Exchanges and Clearing, and the Securities and Futures Commission. The board will draw most of the council's funding, with a financial reporting review panel to be filled by non-executive members. A large part of the budget will go to staff salaries, and the council will not need to pay rent as it will be sharing the premises of the Company Registrar. The consultation paper did not specify the number of board members. Asked about the legislators' concerns, Mr Ma said the board's proposed budget was reasonable. 'The four funding parties would like the Financial Reporting Council to operate on a lean and efficient structure,' Mr Ma said. 'We believe that, as a start, the agreed funding would be sufficient. Moreover, the four parties have agreed to review the longer-term provisions for the council in light of its actual operations.' Mr Tong added that 'the initial funding proposal is adequate, but it needed to be kept under review'. 'It is important that it has sufficient funding to enable it to do its job well,' he said. Mr Tong believes the proposed reforms would help restore public confidence in the accountancy sector, whose image has been tarnished by the scandals in the US and in Hong Kong. He also welcomed the setting up of a financial reporting review panel to monitor corporate financial statements for non-compliance with accounting or disclosure rules. 'This will force the management to change or to explain some problematic accounting treatment. A similar panel has worked well in Britain in recent years.'