Accounting and Financial Reporting Council
The AFRC is vested with expanded statutory functions, on top of its previous regulatory powers in relation to public interest entity (PIE) auditors, to issue practising certificates to certified public accountants, register practice units and PIE auditors, and deal with matters regarding inspection, investigation and discipline. The AFRC is also responsible to promote the development of the accounting profession and oversee the Institute’s performance of its various statutory professional functions.
Protocols governing the relationship between the Institute and AFRC
The close and coordinated activities of the Institute and the AFRC ensure that the two statutory bodies can work together efficiently. The relationship is overseen by the following agreements.
Revised Statement of Protocol on Oversight Arrangements
On 16 August 2022 the Institute and the FRC signed a Revised Statement of Protocol on Oversight Arrangements to include AFRC’s broader responsibilities to oversee the HKICPA’s performance of its statutory functions under the further reform of the regulatory regime of the accounting profession which commences on 1 October 2022. Read the press release for more information.
2021 Memorandum of Understanding
On 6 May 2021 the Institute and the FRC signed a Memorandum of Understanding (MoU) revising arrangements to refer cases between the Institute and the FRC. Read the press release for more information.
Statement of Protocol
On 27 September 2019 the Institute and the FRC signed a Statement of Protocol to set out clearly the oversight arrangements between the two statutory bodies. Read the press release for more information.
2008 Memorandum of Understanding
On 20 February 2008 the Institute and FRC signed the first MoU that set out the working arrangement for efficient and effective cooperation and coordination.
2023 assessment
The 2023 Oversight Report on HKICPA's Performance of Specified Functions, which is the fourth report of the AFRC on the assessment of the performance by the Institute that fall under AFRC’s oversight, was published on 20 November 2023. This is the first oversight report that covers the new specified functions of the Institute added to the AFRC’s purview following further reform of the accounting profession, which came into effect on 1 October 2022.
The Institute is dedicated to fulfilling its public duties and maintaining the quality and professional development of the accounting profession. The Institute works with the AFRC to achieve these objectives and the oversight role of the AFRC in respect of the specified functions is a key element of this collaboration. The Institute takes the results of the annual assessment very seriously and will make all reasonable efforts to address the AFRC findings and recommendations in an appropriate timeframe.
2022 assessment
The AFRC 2022 oversight report on the Institute’s performance of the specified functions was published on 15 November 2022.The Institute is committed to effective delivery of its statutory responsibilities and maintaining the quality and standing of the accountancy profession in Hong Kong and protecting the public interest. Our working relationship with the AFRC is a crucial part of this objective.
We are pleased to note the recognition that four of the eight findings in the 2021 assessment have been satisfactorily resolved and that good progress has been made in addressing the remaining four, which by their nature have a longer timeline for completion. Our response to the two new findings from the 2022 assessment are included in the report and will appropriately address the matters raised.
The Institute remains committed to working closely with the AFRC in its new extended role to ensure the Hong Kong accountancy profession remains one of the most respected worldwide.
Second FRC assessment
The report on the second assessment by the FRC of the Institute’s performance of the Specified Functions was published on 16 December 2021. The Specified Functions comprise registration of PIE auditors; setting standards on professional ethics and auditing and assurance practices for PIE auditors; and setting CPD requirements for PIE auditors. The performance of these functions by the Institute and the oversight of the FRC is important to ensure the quality of audit and public trust in PIE auditors.
The Institute appreciates the assessment undertaken by the FRC and has responded positively to the findings and recommendations.
We are pleased to note that this year the FRC has included our responses to the findings and recommendations in the published report, which emphasizes the importance of our two organizations working together. We also note the FRC’s recognition of our positive responses to the 2020 recommendations, and that the four items described as having “room for improvement” are part way through a planned enhancement process. The three new findings and recommendations relate to an area of activity connected to the registration of PIE auditors that was not reviewed by the FRC in 2020. They are acknowledged and, as shown in our responses, will be addressed. We will continue engagement with the FRC to ensure all recommendations from the 2020 and 2021 assessments are appropriately and effectively addressed.
The Institute takes its public interest responsibilities very seriously and remains committed to performing the specified functions in a manner that fulfils these responsibilities.
First FRC assessment
The first FRC report on assessment of the Institute’s performance of specified functions was published on 11 December 2020. The report can be found on here.
The Institute and the FRC share a common public interest aim of enhancing the quality of audit of PIE in Hong Kong. The Institute participated in the assessment in the spirit of collaboration and to achieve the common aim.
The Institute continuously seeks to improve its operations and processes. A number of the areas highlighted by the FRC had already been identified by our internal review processes and were under consideration by relevant committees. Considering how the findings have been assessed is likely to be a key element of the 2021 assessment.
In March 2021 the Institute provided the FRC with a formal status report on its progress made since the assessment. Some of the changes in operations and process are not quick fixes and will take more than one year to fully implement.
Key enhancements to operations in the areas assessed by the FRC include:
Committee composition and performance
The Institute has enhanced or is in the process of enhancing the following policies and procedures:
- Formalized knowledge, skills, and experience requirements for committee members.
- Updated the terms of reference for committees to ensure they are current, and committed to annual reviews of them.
- Enhanced documentation of committee members’ performance evaluations.
Registration of PIE auditors
The Institute is working on the following to enhance its registration of PIE auditors:
- Further development of policies and procedures for the conditions on registration of PIE auditors based on the experience of other professional bodies and regulators and with reference to the FRC’s recognition criteria for overseas auditors.
CPD requirements for PIE auditors
To ensure that PIE auditors are sufficiently skilled the Institute has:
- Mapped the CPD programmes on offer from the Institute against inspection findings from the FRC and the Institute’s Quality Assurance Department, to ensure appropriate technical guidance and support is in place.
- Redrafted the Code of Ethics for Professional Accountants Statement 1.500 Continuing Professional Development to incorporate paragraphs from International Education Standard 8 Professional Competence for Engagement Partners Responsible for Audit of Financial Statements.
Standard setting
Background information
For further details of the further reform of regulatory regime of accounting profession, which commenced on 1 October 2022, please refer to the dedicated webpage.
Before the FRC took over the responsibility for regulating PIE auditors, the Institute had long advocated the development of an independent audit regulatory regime. This webpage archives our efforts and information on the FRC (Amendment) Ordinance 2018.
