19 March 2014

Dear members,

CE update - Audit regulation reform member consultation results

Member consultation on audit regulation reform commenced on 8 October 2013 with the Institute's issuance of an Information Paper and Request for Comment. Since then, the Institute has been actively engaging members, in particular key stakeholders including practising certificate holders, listed-company auditors, small- and medium-sized practitioners and professional accountants in business through seminars, lunch seminars and briefing sessions to learn more about their views for incorporation into our final submission. Members have also been invited to send their submissions and take part in an online survey to give their views.

The Institute hosted ten member forums, seminars and briefing sessions, and received 15 written responses from firms, 27 from individual members, and more than 4,500 online responses from individual members during the consultation period which ended on 17 January 2014.

We would like to thank all participants in this important consultation for the profession and Hong Kong.

A review of the written submissions, statistical analysis of responses to the online survey and comments from seminars we received during the consultation period indicates that there is a strong support from members for the Council's position on the proposed audit regulation reform.

Based on the submissions, we have identified and communicated with the government and the Financial Reporting Council a number of areas of concern that should be followed up post-consultation. These include:

European Commission equivalence
- It is a reputational issue but with few immediate additional benefits.
- There is more than one way to achieve equivalence and our support for this as a policy objective is conditional on the new oversight regime not causing unnecessary disturbance to existing systems.

Oversight and reserve powers
- Oversight will be an after-the-event review of process and independent oversight body will not be involved in operational activities.
- More details in terms of checks and balances over the use of reserve powers should be sought and set out.

Registration
- There should be no additional criteria for registration beyond current requirements for member and firm registration.
- There is a concern about the independent oversight body pre-judging ongoing or pending disciplinary action and making decisions on registration of auditors.

Enforcement and disciplinary action
- Enforcement and disciplinary action should be kept separate from investigation and inspection.
- Right to appeal to the Court of Appeal should be unrestricted.
- Maximum penalty expressed as multiple of "profit or loss" is not a relevant measure.
- Proposed maximum penalty of HK$10 million per case is excessive for many audit firms and may restrict competition.
- Sanctioning guidance based on key principles of fairness and proportionality should be developed.

Standard setting
- Independent oversight body should not have to endorse, or express no objection, before audit and ethical standards become effective.

For further details about members' responses, please visit our dedicated website, or access the report on the results of online survey and read the latest A Plus report.

Going forward, the Institute is formulating a detail plan to engage our stakeholders as we proceed to public consultation to be conducted by the government. We will continue to advocate for the most suitable reform that is best for Hong Kong's long-term wellbeing.

 

 

 

Best regards,


Raphael Ding
Chief Executive and Registrar