White Collar

Hong Kong’s accountancy regulator may have new powers, but does it have the funding to get the job done?

The newly empowered Financial Reporting Council has been granted a budget that’s lower than other regulators in the city

PUBLISHED : Monday, 22 January, 2018, 12:49pm
UPDATED : Monday, 22 January, 2018, 10:16pm

Hong Kong will finally have an independent regulator of auditors, but whether it has sufficient resources to get its job done is the next question. It has been given a smaller budget than any other regulator in Hong Kong.

After several years of lengthy debate the government is finally pushing through a law change which, if successful, will see the Financial Reporting Council’s powers expanded to inspect, investigate and discipline auditors in more than 2,000 listed companies.

The Financial Reporting Council (Amendment) Bill 2018 will be submitted to lawmakers on Wednesday and discussed in the coming months before a final vote is taken.

The council would take over its additional powers from the industry body, the Hong Kong Institute of Certified Public Accountants (HKICPA). Set up in 1973, the HKICPA is a self-regulatory body that issues accounting licences, sets industry standards, provides training and regulates the city’s 42,000 accountants.

The Hong Kong government followed global standards by setting up an independent body, the Financial Reporting Council (FRC), in 2006. But it only handled investigations, while the other regulatory functions were carried out by the institute. Its remit was not generally considered broad enough when compared with other markets, which had independent auditor regulators with full powers.

The current reform would mean the institute loses all regulatory powers over auditors of listed companies to the council.

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But we must wonder whether the new regulator will have enough money to carry out its duty, even though on the face of it, its funding has tripled.

The FRC’s budget for 2016 was HK$29.4 million (US$3.76 million), and it had a headcount of 22. It is funded by several parties including the government, the HKICPA, the Securities and Futures Commission and Hong Kong Exchanges and Clearing.

Once the Bill passes into law, the government proposes to increase its annual budget three-fold to HK$90 million. The HKICPA considers this budget too high but in fact it is lower than other regulators in Hong Kong.

The newly established Insurance Authority has hired 180 people since it started operations in June, and aims to have 300 staff. It has a budget of HK$650 million for its first four years of operation.

The FRC’s allowance of manpower and funding is a long way behind the Securities and Futures Commission’s 860 staff and annual budget of HK$398.28 million (US$50.91 million).

It’s also a lot lower than the US Public Oversight Board, a statutory body with a budget of US$250 million and 770 staff to handle all areas of accounting regulation.

Britain’s Financial Reporting Council, responsible for inspections, investigations, enforcement and standard-setting, has an annual budget of £35 million (US$48.66 million).

If we want the newly empowered FRC to do its job properly, it must be given the resources to do so. Its role in strengthening Hong Kong’s position as a global financial centre depends on it.

This article has been modified to reflect the actual number of member of HKICPA and the budget of Britain’s Financial Reporting Council.