Dear member,

HKEx announcement on accounting and auditing standards for mainland incorporated companies listed in Hong Kong

HKEx announced this morning that effective from accounting periods ending on or after 15 December 2010, mainland incorporated companies listed in Hong Kong can have the option to present financial statements using Chinese Accounting Standards for Business Enterprises (CASBE) and audited by an approved mainland audit firm.

These companies would be mainland incorporated companies listed or seeking listing in Hong Kong, including both H share companies and A+H share companies.

What this means is that A + H share companies may dispense with the H share financial statements and prepare only one set of financial statements using CASBE and audited by an approved mainland audit firm for listing in both mainland and Hong Kong. They may also continue to prepare both. H share-only companies may choose to continue to prepare their financial statements audited by a Hong Kong audit firm using HKFRS/IFRS or switch to present CASBE based and mainland audited financial statements.

The mainland authorities have created a set of criteria whereby 12 mainland audit firms have been endorsed as eligible for appointment as auditors of H share companies. One of the criteria designated by the mainland authorities is that it must have a member firm in Hong Kong or being under the same international accounting firm with one Hong Kong-based accounting firm. The objective is to bring closer ties between mainland and Hong Kong firms and ensure mainland companies are able to gain the expertise of both the mainland and Hong Kong practices.

Please refer to HKEx's website for the list of the 12 mainland audit firms endorsed by the mainland authorities under the Scheme. Basic information of the mainland audit firm is available for public information at the "Accountant and CPA of China" website under the MoF. These firms, together with their Hong Kong affiliated practices, now audit nearly 90 percent of all H share financial statements and nearly 85 percent of all A share financial statements of the A + H share companies. As a result, very few Hong Kong audit firms outside the 12 networks are significantly affected by the HKEx announcement.

The basis for this new framework relies on the on-going convergence of the accounting and auditing standards of the two sides. The attached provides an up-to-date status of the on going convergence process. The annual convergence update for 2008 (dated March 2009) and 2009 (dated 15 December 2009) and the 2007 declaration (dated 6 December 2007) can be found on the Institute's website.

To assist our members, I attach a paper outlining the background, options and impacts to companies that will be affected following this announcement, and some FAQs for your reference.

I would like to reassure our small- and medium-sized practitioners that this announcement comes in the midst of our talks with the MoF to gain the right to set up audit practices on the mainland for our members who are qualified to do it. This will open a very large market to them, with many opportunities. An MoU to grant exemption to our members for a fourth PRC CPA Uniform Examination paper "Corporate Strategy and Risk Management" was signed on Tuesday, 7 December 2010; further increasing the ease for our members to obtain the China CPA qualification.

Further, the scheme is reciprocal in nature with the objective of benefiting both the markets in Hong Kong and the mainland. As such, it also allows reciprocal acceptance of companies incorporated or registered in Hong Kong and listed on the mainland to prepare their financial statements using HKFRSs or IFRSs and be audited by Hong Kong audit firms using Hong Kong auditing standards. We expect that the Hong Kong audit profession would benefit from the new scheme when the International Board, being contemplated for the Shanghai Stock Exchange, is established.

If you have any comments or specific questions, please write to us at AandHshares@hkicpa.org.hk.

 

 

 

Sincere regards,

Winnie C.W. Cheung
Chief Executive & Registrar