Listed companies in both Hong Kong and the mainland will be able to save millions of dollars in fees if a new arrangement takes effect
The convergence of mainland accounting and auditing standards with international accounting and auditing standards means that A- and H-share companies in Hong Kong and the mainland may save millions of dollars in auditing fees should the double audit requirement be abolished.
All A- and H-share dual-listed companies must separately report their quarterly, interim or full-year financial results under Chinese Accounting Standards (CAS) and Hong Kong Financial Reporting Standards (HKFRS).
The financial statements for A-share companies have to be prepared under CAS and then audited by a firm of Chinese certified public accountants (CPAs) using the same standards. The financial statements for the H-share companies have to be prepared under the International Financial Reporting Standards and audited by a firm of Hong Kong CPAs using either the Hong Kong or international auditing standards. In addition, as the shares are listed on different stock exchanges, they have to follow or comply with either the mainland or Hong Kong exchange listing rules.
With the number of companies listed on the mainland and Hong Kong close to 60, the burden of double audits in terms of time and cost is onerous. According to their annual reports, for example, Industrial and Commercial Bank of China (ICBC) paid about 160 million yuan (HK$182.6 million) last year for its domestic and Hong Kong audits, and PetroChina spent almost 120 million yuan last year for its double audits.
The mainland cancelled its requirement for separate audits for dual-listed financial companies and firms trading in the B-share market at the end of last year.
But the A- and H-share requirement may be harder to shake, largely because of the geographical limitations of the regulators on either side of the border. Right now, accounting firms on the mainland are supervised by the China Securities Regulatory Commission, the Ministry of Finance, tax bureaus, and audit regulatory bodies. These regulators cannot supervise firms in Hong Kong, nor can Hong Kong regulators supervise firms on the mainland.