14 August 2014
President¡¦s letter to members on two important issues
Thank you for entrusting the Institute's Council and management to carry out the Institute's statutory role in the public interest. I write to update you on two matters that have recently attracted considerable public comments, both of which are of great importance to our profession: listed entity auditor regulation reform and the Institute¡¦s investigation and disciplinary processes.
I. Listed entity auditor regulation reform
The government's consultation on improving the regulatory regime for listed entity auditors is set to end on 19 September. We are delighted to see that several issues raised during our member consultation have been addressed in the public consultation document. Moving forward, we will continue to engage our members and stakeholders to work on our previously raised proposals that have still to be taken up and a few new issues that have since come to light in the public consultation.
Separation of functions
Similar to the proposal regarding FRC's power of entry to CPA firm premises, "penalty capping at the greater of HK$10 million or three times profit gained or loss" is a measure copied from the regulatory regimes of the securities, banking, mandatory provident fund and insurance sectors. The auditing profession is different as we are not market participants and we do not sell financial products or hold client assets. We provide services to listed companies in the same way as, say, a lawyer provides legal services. Thus, we believe that copying the sanctioning regime of financial regulatory models for other market participants is not appropriate.
For the benefit of all proposed funding parties, we encourage the FRC to at least provide an estimated quantum of the expected operational costs under the new system and clear explanation of accountability and control mechanisms to address concerns that funding parties will be expected to write a blank cheque. The consultation proposes that one of the key controls over FRC costs will continue to be approval of annual budgets by the Secretary for Financial Services and the Treasury. Given the resulting improvement on the regulatory regime will benefit Hong Kong capital market as a whole, we believe the government should continue to be part of the funding arrangement. If the government ceases to be a funding party and will not be represented in the council of the FRC, we are not convinced that the approval of annual budgets by the government gives sufficient comfort to potential funding parties.
We will continue to work with all concerned to help establish an independent listed entity auditor regulatory system that is globally recognized, protects public interest, and helps Hong Kong to remain as an international financial center.
The Institute's has created a dedicated webpage on the subject. Please visit it for updates and details.
II. Institute's investigation and disciplinary functions
The recent conclusion of a high profile and long running disciplinary case has generated some adverse comment on the Institute's investigation and disciplinary processes, particularly about the length of time it has taken to bring the case to a conclusion. Although we agree that excessive delays in completing cases are not acceptable and we will continue to improve the process, there are a few other factors about disciplinary proceedings that need to be understood.
In 2007 a further step was taken to enhance independence when responsibility for all investigations involving listed companies was transferred to the FRC.
Concerns about conspiracy theories and favourable treatment for certain individuals are completely unfounded and baseless. We take our statutory duties and public interest responsibilities very seriously and our members and the public can rely on us to continue to do so.