22 June 2012

Dear member and student,

Clause 399 of the Companies Bill

We have created this discussion forum on LinkedIn so that our members can have an online discussion about the repercussions for auditing profession should the Legislative Council vote in favour of Clause 399 of the Companies Bill, which will impose a criminal sanction on auditors for knowingly or recklessly omitting certain required statements from an audit report. A late Committee Stage Amendment (CSA) put forward by the government extend the scope of the potential criminal liability to audit managers. Click here for instructions to access the LinkedIn forum.

We have been talking to the Administration and legislators about our concerns. In particular, we have emphasized:

- It will potentially criminalize conduct involving a high degree of professional judgment.
   
- It will lead to "defensive" auditing, which will increase costs and be disadvantageous to business in Hong Kong.
   
- As it will not be applicable to the bulk of listed companies, which comprises 75% (in value) of non-Hong Kong companies, it will result in unfairness and an uneven playing field in the Hong Kong market.
   
- It will create disparities between Hong Kong and non-Hong Kong companies that will affect the competitiveness of the former.
   
- In practice, it will place a disproportionate burden on small and medium-sized enterprises, for which costs and cash-flow are critical.
   
- The effect of this provision will be to cause good people to leave the profession and to discourage others from joining. This will ultimately have a negative effect on audit quality, which is not in Hong Kong's interests.
   
- In sum, while not materially benefiting companies or investors, this provision carries grave downside risks.

We've sought to persuade the Administration and the legislators to adopt the following course of action:

1. Withdraw the Committee Stage Amendment to Clause 399 put forward by the Administration and
   
2. Support the Committee Stage Amendment proposed by the Institute to delete "or recklessly" in clause 399(1).

If you are in agreement with the above, you may wish to sign and return a copy of the attached letter to the Institute by email to c399@hkicpa.org.hk.
   
 

Sincere regards,

Winnie C.W. Cheung
Chief Executive
Hong Kong Institute of CPAs

CPA: The Success Ingredient