With a three-month consultation period on enhancing the regulatory regime for auditors of listed firms set to end this Friday in Hong Kong, a critical issue — allowing the Financial Reporting Council to have disciplinary authority over errant auditors — could go unresolved.
The accounting and auditing professionals are in general opposed to the idea of being regulated by an outside body, saying that self-regulation is best for the industry. However, they have indicated that they would be open to the possibility of an independent tribunal being vested with the powers.
But the government is of the view that setting up a new tribunal outside the existing audit regulatory bodies would mean duplication, the Hong Kong Economic Journal reported Monday, citing Au King-chi, Permanent Secretary for Financial Services and the Treasury.
The proposed change is by transferring the disciplinary function to the Financial Reporting Council from the Hong Kong Institute of Certified Public Accountants, ending the self-regulatory era for the profession that involves over four thousands practitioners in more than 50 firms.
The accounting profession has been criticizing the proposal that would give all the investigation, prosecution and punishment power to the Financial Reporting Council. The industry says such sweeping powers in one body would give rise to conflict of interest.
What’s more is the new structure will lengthen the road to appeal should an accountant object to a ruling made by the Financial Reporting Council, the industry says, pointing out that one can go to the Court of Appeal only after appeals lodged with the council fail.
Au said the proposed regime is aimed at ensuring fairness and justice. The authority has conducted two consultations and has been working closely with the Hong Kong Chinese Society of Accountants, the Hong Kong Institute of Directors Association, lawmakers, and other stakeholders, with a view to submitting a draft bill to the Legislative Council in 2015.
The International Monetary Fund suggested in May this year that Hong Kong should establish a fully independent disciplinary authority to oversee the auditing industry.
With its function currently limited to investigation, the Financial Reporting Council is not qualified to join the International Forum of Independent Audit Regulators. That has led to a situation where Hong Kong auditors are unable to obtain qualifications equivalent to the European Union system, making them less competitive in seizing opportunities to help locals firms raise funds in the EU.
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