HKICPA fears audit reform proposals will make regulator 'too powerful'

Accounting group objects to the regulator having investigation and disciplinary role

PUBLISHED : Monday, 22 December, 2014, 9:31am
UPDATED : Monday, 22 December, 2014, 9:31am

The Hong Kong Institute of Certified Public Accountants (HKICPA) has expressed reservations about two major audit reform proposals.

The government has just completed a consultation on handing more of the HKICPA's powers to the Financial Reporting Council (FRC) to add teeth to the regulator. The FRC in 2006 took over the power of investigating audit failures of listed companies but the HKICPA continues to license and set standards for the 38,000 accountants in the city.

Currently the FRC passes on the findings of its investigations to the HKICPA for the latter to decide on disciplinary action. This arrangement is seen as contrary to the international trend of allowing non-accounting bodies to play a greater role in audit regulation.

In the third quarter, the government completed a consultation process to allow the FRC to take over from the HKICPA the roles of practice review and setting of disciplinary action.

"We are not opposed to the reform but we fear the FRC would become too powerful if it is doing both the investigation and setting disciplinary action," Ho said, adding that it would be better to let a committee formed by independent members decide on the disciplinary action for errant auditors.

He said the current reform does not put emphasis on the quality of financial statements of listed companies. "It would be better for the stock exchange to require all listed companies to hire at least one qualified accountant to handle the financial statements to improve their quality and enhance transparency."

The HKICPA also has submitted its position paper to the stock exchange on its consultation on whether Hong Kong should allow companies to list with dual share structures. The exchange last month completed a consultation on the issue after losing e-commerce giant Alibaba Group's initial public offering.

Alibaba eventually listed in the US in September after the Hong Kong exchange refused to grant it the exemption to list in a structure that would allow its founder and key executives to nominate the majority of the board even though they hold a minority stake.

"The HKICPA is opposed to changes in the listing rules to allow dual share structures if there is no safeguard for investors. The US has class action, which Hong Kong doesn't. Investors here can rely only on regulators to protect their interests," Ho said.

"If the stock exchange proposes a whole set of rules to protect investors' interests when it allows dual share structures, we would consider supporting the change if the safety measures are strong enough."