In a written reply to a question in the Legislative Council, Secretary for Financial Services and the Treasury, Professor K C Chan, disclosed that the Government could join with the Financial Reporting Council (FRC) and the Hong Kong Institute of Certified Public Accountants (HKICPA) to formulate proposals to reform Hong Kong’s auditor oversight regime.
Firstly, Chan confirmed that, to enhance Hong Kong's status as an international financial center, it is important that Hong Kong maintains an effective regulatory regime for the accounting profession on par with international standards and practices, so as to enhance market confidence in its financial reporting and corporate governance.
To this end, the FRC was established in 2006, following public consultations and thorough discussions among the Government, the HKICPA, the Securities and Futures Commission and the Hong Kong Exchanges and Clearing Limited, and in line with the international trend towards making the oversight of auditors and financial reporting of listed entities more independent from the accounting profession.
Under the present statutory regulatory regime, the FRC is responsible for investigating possible auditing and reporting irregularities in relation to listed entities and enquiring into their possible non-compliance with accounting requirements, whilst the HKICPA is responsible for all other regulatory functions with regard to the accounting sector, including the supervision of accounting firms providing services for listed and non-listed entities.
Currently, the FRC conducts investigations on auditing and reporting irregularities in relation to listed entities, while the HKICPA would conduct investigation on auditing and reporting irregularities in relation to non-listed entities. There is therefore no duplication between the statutory roles of the FRC and the HKICPA with regard to the regulation of accounting professionals.
Furthermore, to ensure coordinated efforts in overseeing the auditors and financial reporting of listed entities, the FRC and the HKICPA hold regular meetings to discuss matters of common interest. Specifically, the FRC maintains regular dialogues with the HKICPA to ensure that there will not be any overlap of efforts to review financial reports of listed entities under their respective financial report review programs.
However, having regard to the possibility of enhancing the independence of the regulatory regimes for the accounting profession, the Government would welcome talks with the FRC and the HKICPA to formulate proposals to further enhance the independence of the auditor oversight regime for listed companies.
Chan emphasized that the Government would take into account the need to enhance effective enforcement, and to minimize compliance burdens, in mapping out the reform proposals for public consultation that may arise out of those talks.