Hong Kong and the United States will end the mutual recognition of audit work done by each other’s professional accountants because of a dispute over the admissibility of overseas experience, adding another wrinkle to a fraught relationship. The mutual recognition agreement with the US International Qualifications Appraisal Board (IQAB), first signed in 2011 and renewed in 2020, will no longer be effective when it expires on December 31, according to a statement by the Hong Kong Institute of Certified Accountants (HKICPA), the city’s accounting guild, with 45,000 members. “The institute and IQAB could not come to an agreement” over the recognition of experience obtained in the US towards meeting the one-year local experience requirement for overseas-trained accountants to practise in Hong Kong, “and therefore could not proceed on the renewal of the mutual recognition agreement,” the HKICPA said. “It is important for overseas accountants to have local experience as there are a lot of differences in the laws and taxation regulations between Hong Kong and the US,” said Edmund Wong Chun-sek, a practising director at Patrick Wong CPA, who also represents the accountancy constituency in the city’s legislature. Who’re you calling a cheat? China rebuts US fraud claim with overture The 2011 agreement, subject to renewals every three years, allowed Hong Kong’s certified accountants to practise in the US without requiring another round of qualifications, and vice versa. The HKICPA has similar accords with 12 accounting bodies, including Australia, New Zealand, Scotland, South Africa, Canada, Ireland and Zimbabwe. The IQAB’s mutual recognition agreements cover seven accounting bodies besides Hong Kong: South Africa, Australia, New Zealand, Canada, Ireland, Mexico and Scotland, according to its website. It did not respond to a request by the Post for comment. China plans new approach to end deadlock with the US over auditing The dispute comes at a sensitive time in deteriorating US-China relations , with Hong Kong caught between the world’s two largest economies. The former Trump administration enacted the 2020 Holding Foreign Companies Accountable Act (HFCAA), which empowers regulators to expel US-listed foreign companies if they were deemed to be non-compliant with auditing requests by a US oversight board. That puts 261 Chinese companies valued at a combined US$1.4 trillion as of March 31 - including this newspaper’s owner Alibaba Group Holding and Li Ka-shing’s Hutchmed - on the list for possible delisting after three consecutive years of non-compliance if a solution were not found to settle the dispute with the Public Company Accounting Oversight Board (PCAOB). The earliest that such a delisting could take place is in October 2023. “The end of the mutual recognition between Hong Kong and the US is just bad timing,” said BDO’s managing director Clement Chan, the HKICPA’s chairman in 2014. “Some people will easily link that up with the political situation” between the US, China and Hong Kong, he said, adding that the local experience rule applies to every professional body that the HKICPA has ties with. “It is a fair requirement, and the HKICPA cannot just give the waiver to the US,” he said. Does Trump want to fence off Wall Street from Chinese firms? Hong Kong is grouped with mainland China in a December 16 determination by the PCAOB of being “unable to inspect or investigate completely.” Chinese and US regulators have been working on a solution, with the China Securities Regulatory Commission (CSRC) chairman Yi Huiman saying as recently as April 9 that the watchdog agency would “move forward” with a plan to work with the US to “establish an international regulatory environment for a highly [liberalised] capital market.” To forestall the spectre of expulsion from New York, numerous US-listed companies have sought to raise capital in Hong Kong, either in dual listings, or secondary offerings. Beginning with Alibaba’s US$12.9 billion stock sale in November 2019 , a string of China-domiciled companies had followed: Baidu , NetEase , JD.com, Xpeng . More are on the way , said Nicolas Aguzin, chief executive of Hong Kong Exchanges and Clearing Limited (HKEX), the operator of the city’s bourse, predicting that at least 180 companies are waiting for the right market moment to sell their stock.