Beijing clears way for Hong Kong accountants to audit Chinese firms

Accountants from the city get nod to work on the books of companies across border but are not allowed to bring back working documents

PUBLISHED : Tuesday, 14 July, 2015, 11:41pm
UPDATED : Wednesday, 15 July, 2015, 8:57am

Beijing has exempted Hong Kong accountants from a controversial rule that bans overseas auditors from working on the books of mainland companies.

Raphael Ding Wai-chuen, the chief executive of the Hong Kong Institute of Certified Public Accountants, told the South China Morning Post, however, the city's auditors would still be banned from taking work documents out of the mainland.

"The new rule dispels fears among Hong Kong-based accountants that they wouldn't be allowed to work [on the mainland] anymore," Ding said.

Hong Kong-based accounting firms had opposed the Ministry of Finance's original proposal, released in May last year.

It would have required them to link up with one of the top 100 accounting firms on the mainland and use that company's employees to audit businesses listed outside the mainland that had significant operations there.

The ministry had planned to implement the changes late last year but postponed them to this month to allow more time for discussion.

Ding said the ministry had accepted many suggestions from the institute, which resulted in Hong Kong accountants being given special treatment even though they would still be banned from using temporary licences to work on the mainland.

The ministry has now exempted all Hong Kong auditors from the new rules if the mainland companies they audit are listed in Hong Kong, with at least half their shares owned by Hong Kong investors.

For companies that fail to meet that threshold, Hong Kong auditors will still need to team up with a mainland accountancy firm. But the rules have been relaxed and they will now be able to choose any firm with more than 25 certified accountants, instead of the largest 100 accounting companies. That widens the pool of potential partners to more than 500.

The originally proposed restrictions still apply to auditors of mainland companies listed in the United States and elsewhere overseas.

"Most importantly, the new rules do not ban Hong Kong firms from sending their staff into the mainland to conduct any kind of audit work," Ding said. "Hong Kong audit firms can exercise their professional judgment to determine the scope of work and fee-sharing with their mainland partners and to send their own staff to work on the assignment.

"It also removes the worry that [Beijing] was banning Hong Kong accountants from working on the mainland."

Albert Au Siu-cheung, the chairman of BDO, the fifth-largest accounting firm in the city, said his company had been changing its staff guidelines in view of the new rules.

"The new rules allow us to continue to freely send any Hong Kong-based auditors or specialists to do mainland audits with the domestic partners," Au said. "We are working with the domestic partners to achieve a good division of labour among our staff to handle mainland audits."

Ding said that during discussions on the proposed changes, ministry officials had made it clear the new rules were aimed at cracking down on overseas companies that had been illegally doing audits on the mainland.

"It never had any intention of keeping Hong Kong accountants out of the mainland," he said. "The latest adjustments should remove all such worries."

While Beijing was not willing to relax a ban on accountants taking working papers out of the mainland - a provision linked to broadly defined state secrets - the ministry had agreed to study with other mainland authorities the setting up of a system and procedures that would allow overseas regulators to access such documents in their investigations. Ding said more details of the system should be ready by the end of this year.

Hong Kong and US securities regulators have requested access to such documents in some investigations in recent years.

The Securities and Futures Commission is still engaged in a legal battle with EY to gain access to accounting working papers related to a listing applicant it is investigating.

Au said the ban put accountants in a difficult position.

"We wish the mainland authorities would issue guidelines to accountants and other regulators on how to handle accounting working papers in relation to the state secrets law," he said. "It needs to find a way to allow accountants to cooperate with the regulators, while at the same time we do not want to breach any mainland state secrets laws."