Reforms will help ensure reliability of financial information provided by mainland companies listing in Hong Kong THE RECENT ENACTMENT of the Financial Reporting Council Ordinance completes a series of significant reforms to the accounting and auditing profession that began in the wake of a string of international accounting scandals more than four years ago. Gazetted in July, the ordinance provides for the establishment of a Financial Reporting Council (FRC) to investigate suspected irregularities committed by auditors and reporting accountants of listed entities, and to inquire into non-compliances of listed entities' financial reports with legal, accounting or regulatory requirements. The world's accounting and auditing profession has had to reshape itself to regain much of the public trust lost through corporate shenanigans and auditing failures. In Hong Kong, much of the reshaping and reform has also been attributable to the fact that the territory is increasingly recognised as a major capital market and as the window to China, according to Winnie Cheung, chief executive and registrar of the Hong Kong Institute of Certified Public Accountants (HKICPA). 'The local accounting profession is in the spotlight mainly because of China's development. More than 90 per cent of all overseas mainland Chinese listings are now taking place on the Hong Kong stock exchange. Hong Kong accountants occupy a very important role in providing quality assurance to the financial information provided by Chinese companies for the world's capital markets.' Alongside the regulatory reform and changes in accounting methodology, the institute underwent a rebranding exercise in 2004, implemented a new qualification framework for accountancy, and adopted international accounting and auditing standards last January. 'We also introduced a much- improved quality assurance programme for monitoring the standard of work of our CPA firms,' Ms Cheung said. 'This is one way of providing quality assurance of the work of auditors in Hong Kong.' As the final part of these reforms, the Financial Reporting Council will take over the investigation of irregularities in the financial reporting of listed companies, which used to be performed by the institute. The ordinance provides for the FRC to have more resources and the authority to investigate non-accountants. The FRC is expected to become effective early next year. It is one of its four funding parties, along with the Companies Registry Trading Fund, Hong Kong Exchanges and Clearing Limited and the Securities and Futures Commission. The HKICPA will contribute HK$2.5million a year as the recurrent funding of the FRC for the first three years and a maximum of HK$5million as the contingency funding for the FRC for the first three-year period. 'We now need to build a working relationship between the HKICPA and the FRC. To this end, we have already begun performing a major review of regulatory procedures, such as our disciplinary proceedings, to make them more efficient and effective.' Another major challenge for the institute is to continue developing the accounting profession and improve its attractiveness for people to join locally. 'There is a shortage of accountants worldwide. With the ongoing expansion of the economy in China, the accounting profession will continue to be in short supply. We need to do a lot more to grow the profession and attract people to it,' Ms Cheung said. People had been key to the success of the reforms implemented so far, she said. 'Most of our reliance on quality is on people, especially given the requirement to bring back trust,' she said. 'Some countries have relied on more rules and regulations and compliance penalties. For us in Hong Kong we feel that is after the event. What is more important is to ensure that we have quality entry into the profession, that people are trained, with competence, and have core values, ethics, integrity, independence and trustworthiness.' This is an area in which the institute has long concentrated its resources and energy to build the quality of the profession at the entry level. Ms Cheung said specifically, accountancy in Hong Kong was now a graduate entry qualification. The law was passed in 1998 but as a graduate entry-level qualification it came into force in 1999. This was now public policy and it required anybody joining the programme to have a degree. The recognition of overseas qualifications had been reassessed and the Hong Kong CPA qualification programme, administered by the institute, had become the mainstream of entry to the accountancy profession in Hong Kong. 'We are doing all this to preserve the world's view of Hong Kong as the international gateway to China. This is ongoing, and it is one reason why we need quality entry into the profession. 'We need to ensure that the profession is properly trained, practitioners' standards are monitored and we have regulations that are effective and transparent in order to protect the public interest,' she said. 'What is more important is to ensure that we have quality entry into the profession, that people are trained, competent and have core values, ethics, integrity, independence and trustworthiness'