21 June 2021

Update on the regulatory regime reform proposals and upcoming Members’ Forum (21 June 2021)

Dear members,

On 11 June we wrote to you regarding the Financial Services and the Treasury Bureau’s (FSTB) proposals to reform the regulatory system of the accounting profession in Hong Kong published on 8 June. This email is an update on the activities the Institute and the Council have undertaken since then, including organizing a Members’ Forum (see below for details).

Details about the proposals

The Council met with Christopher Hui, Secretary for Financial Services and the Treasury, and his team from the FSTB on 17 June. At the meeting, the secretary explained the proposals, their rationale for the changes, and the timeline for implementing the reforms. These points are summarized below.

The secretary explained that the reforms are intended to strengthen the regulatory regime by ensuring all regulatory powers are vested with an independent statutory body in the Financial Reporting Council (FRC), which will be renamed the Accounting and Financial Reporting Council (AFRC).

The AFRC will have the registration powers covering all practice units, public interest entity auditors, and the issuance of practising certificates. The AFRC will also investigate and discipline all CPAs and practice units, and inspect all practice units. The scope of investigatory and disciplinary powers and sanctions will remain unchanged from their current levels under the Institute.

The AFRC will also have greater oversight over the Institute, covering the registration of CPAs, the setting of professional and ethical standards, and continuing professional development requirements.

There will be a transitional period where the Institute will finish in progress practice reviews, investigations and disciplinary cases.

As for the rationale, the secretary stated that the proposals would vest regulatory powers within an independent statutory body, give the FRC/AFRC more responsibility, and rationalize the roles of the Institute and the AFRC to enhance efficiency and consistency.

The amendment bill will be introduced to the Legislative Council within this legislative year and the government aims to pass it and the subsidiary legislation required to enable the changes by June 2022. The government intends for the reforms to be effective from Q3 2022.

With the change, in addition to the core functions that will be overseen by the FRC, the Institute will focus on attracting the next generation of accounting professionals to the industry, professional development, and supporting its members in their careers.

Clarifications still required

The Institute believes that there are still a number of areas that need to be clarified. We will continue to liaise with the FSTB and the FRC regarding these aspects.

There are still limited details about the reform. The Government should provide more information, notably about the transitional arrangements and period. The Institute wishes for the continued smooth regulation of the profession, and hopes the Government and the FRC will consider knowledge transfer and experience sharing, and setting up a tripartite task force to oversee the transition.

There has been limited consultation with all stakeholders affected, including within the industry and the wider business community, to gauge their views and assess the implications of the reform. The proposals represent a fundamental change in the regulatory landscape of the accounting profession and will have a profound impact on the business community, and especially our members.

There is little room for discussion within the tight legislative timetable. Changing the regulatory regime for accountants and auditors is an important matter for Hong Kong. More consultation and the gradual implementation of changes is recommended to ensure the effectiveness of the reforms.

Update on our previous email

In our previous email we set out two tasks we would undertake. This section summarizes that work.

Comparative study

We have conducted a preliminary comparative study of jurisdictions around the world to determine how the government’s proposals fit in with international practices. We researched the situations in a number of jurisdictions, including other major international financial centres.

There is no one approach, although generally the focus is on the regulation of public interest entity (PIE) auditors. Other jurisdictions have moved to the independent regulation of PIE auditors in the last twenty years, but regulatory models for the whole of the accountancy profession vary between jurisdictions. Some of the differences reflect the different natures and structures of the profession in different jurisdictions.

In some jurisdictions, professional bodies retain, or have been delegated, certain responsibilities in the regulation of non-PIE auditors and generally oversee the professional conduct of non-practising members. While in other jurisdictions, all functions of the professional bodies come under the oversight of a government appointed authority.

Members’ Forum – 28 June 2021

The Institute will hold a virtual Members’ Forum next Monday, 28 June, from 6:30 p.m. to 8:00 p.m., where representatives from the FSTB will go through the proposals. Attendees will also have the opportunity to submit their questions on the reforms to be answered by the representatives. We hope you will attend this forum and share your views. Registration is now open.

Finally, the Institute is working on other ways to collect members’ feedback on the proposals, such as through further meetings and online surveys, and will announce plans in due course.

Sincerely,

Hong Kong Institute of Certified Public Accountants

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