12 July 2012

Dear Members and Students,

Hong Kong Institute of CPAs welcomes LegCo's decision not to include junior staff in scope of clause 399, while expressing disappointment that other amendments were not passed

I am writing to report that, although clause 399 of the Companies Bill was passed at the Legislative Council today, the Institute has been successful in gaining the legislators' support to exclude junior staff from liability for the criminal offence under this clause. A large majority of the Legislative Council today voted down the government's proposed Committee Stage Amendment to the clause, which would have put staff managing part of an audit at risk of criminal prosecution.

Clause 399 imposes criminal sanctions on auditors for knowingly or recklessly omitting certain required statements from an audit report. Disappointment remains that the Hon. Paul Chan's CSA, removing the threshold of "recklessly" omitting a required statement from an audit report, did not gain sufficient support in the Legislative Council. The proposed amendment would have reduced the negative impact of the clause on the profession.

Over the past few weeks, the Institute made several submissions to the Bills Committee, met with legislators from different parties, and wrote to all legislators to explain its concerns and seek their support.

Another positive development from these lobbying efforts is that the government has indicated its willingness to consider issuing a Companies Registry external circular on how this provision will be interpreted, which we understand, will have the support of the Department of Justice. In our communication with the government, we have been repeatedly assured that the intention of clause 399 is not to target honest mistakes, so we hope the government will proceed with the issuance of a circular to make this point absolutely clear. We will convey our willingness and desire to provide our assistance to the government in developing the circular to ensure our members are offered protection that is reasonable and fair.

The Institute will also form a working group with a view to producing practice guidance for members on the conduct of audits and audit reporting, in light of the potential implications of clause 399. We will aim to have practice guidance in place before the new Companies Ordinance is brought into effect.

On behalf of the president and the Council, I would like to thank everyone who has voiced their support for our concerns. This includes member practices, large and small, and individual members, including members in academia and business, some of whose employers also expressed concern about the effect of this clause on Hong Kong businesses. We are grateful to those legislators who have backed our case and to Hon. Paul Chan, in particular, for all his efforts to champion our case in the Legislative Council.

We are proud of the strong solidarity shown, not only among members of the profession working in audit, but those from all sectors. The accounting profession has much to be proud of and, although the outcome of the clause 399 issue may not be ideal, we have full confidence that members of the profession will continue to play a vital role as guardians of Hong Kong's financial system with the skill and integrity the community has come to expect.

The Legislative Council meeting today involved a lengthy and enlightening discussion on the clause with a number of legislators from different political parties voicing their views. Members interested in listening to the full discussion may go to the LegCo website and look for the archive recording "Council meeting dated 2012/07/12 08:30:00 AM" from tomorrow by accessing http://webcast.legco.gov.hk/public/en-us/SearchResult.

Yours sincerely,

Raphael Ding
Chief Executive & Registrar
Hong Kong Institute of CPAs

CPA: The Success Ingredient