‘Unacceptable’: Hong Kong’s small auditors are cutting corners, threatening to undermine city’s finance hub status, says accounting watchdog

‘Their attitude in compromising audit quality either by impaired objectivity or by cutting corners is unacceptable,’ says regulator’s head of inspection

Edmund Wong, a lawmaker for the sector, said smaller players are often hampered by difficulties in recruiting the best talent

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Hong Kong’s small accounting firms are cutting corners and failing to learn from past mistakes, potentially eroding public trust in the city as an international financial centre, according to a senior regulator. Photo: Reuters

Published: 6:30pm, 11 Jul 2023

Hong Kong’s accounting watchdog has lashed out at the city’s also-ran auditors, accusing them of malpractices that could imperil the city’s status as a global financial sector.

Small and medium firms, typically those that audit fewer than 100 listed companies a year, have the “disappointing” tendency to cut corners and show the failure to “learn from past mistakes,” displaying an “unacceptable attitude” that “compromises audit quality,” according to Janey Lai, head of inspection at the Accounting and Financial Reporting Council (AFRC), citing an annual review of the industry’s work.

“There is huge room for improvement for these accounting firms,” Lai said during a press conference, without singling out any firm by name. “The recurrence of deficiencies from our annual inspection over the past three years indicated that some firms have not learned enough from our previous inspection findings.”

The AFRC’s harsh assessment of the industry, comprising more than 10,000 certified auditors, comes even as the city offered itself as the neutral ground in the years-long auditing dispute between the United States and China.

“Their attitude in compromising audit quality either by impaired objectivity or by cutting corners is unacceptable,” she said, adding that the audit quality of large firms is generally good. “This could have a severe impact on the public’s confidence in the quality of financial reporting of Hong Kong as an international financial centre.”

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