Financial Secretary Paul Chan
There were, at the time, growing public concerns over a number of corporate governance issues and the credibility of financial reporting and auditing practices. At the same time, there were active discussions on improving the auditor regulatory framework in many overseas jurisdictions.
Here in Hong Kong, the Government initiated discussions with the accountancy sector on ways to improve our auditor regulatory regime.
A two-pronged legislative approach was adopted to enhance the independence, and the accountability, of the regulatory regime.
Legislation was introduced to set up an independent body – the Financial Reporting Council – to take over the investigation functions of the Hong Kong ICPA (Institute of Certified Public Accountants) in regard to auditing and reporting irregularities in relation to listed entities.
As well, amendments to the Professional Accountants Ordinance were made. They introduced independent lay persons to the governing council of the Institute and to the disciplinary process administered by the Financial Reporting Council.
These legislative steps were completed between 2004 and 2006. Following the enactment of the Financial Reporting Council Bill, in 2006, the council commenced full operation in July 2007, making Hong Kong one of the earliest jurisdictions to improve its auditor regulatory regime.
I would say this underlines the dedication to ensuring integrity of the regime and reinforcing Hong Kong’s status as an international financial centre.
Since then, the council has been responsible for conducting investigations into auditing and reporting practices of the auditors of listed entities, as well as reviewing the financial reports of listed entities.
Over the years, the Council has played an increasingly important role in upholding the quality of financial reporting in respect of listed entities.
It has accumulated expertise and invaluable experience in financial reporting regulatory issues. There is also a full range of statutory and administrative safeguards in place to ensure that the council exercises its investigative powers properly.
That said, international practice today is that regulatory regimes for auditors of public interest entities are independent of the audit profession, and subject to independent oversight by bodies acting in the public interest.
In that regard, Hong Kong is seen as operating a largely self-regulatory regime over auditors. That has not been to our advantage, as we strive to maintain our international reputation and competitiveness.
In short, the time has come for us to reform the auditor regulatory regime, to ensure its independence.
The auditing profession, I’m pleased to say, largely shares those thoughts, supports the Government’s initiative to boost the council’s function, to refashion it into an independent auditor oversight body, one with direct investigation and disciplinary powers over auditors of listed entities.
At the same time, the Council will exercise independent oversight of the registration, professional standard-setting and training functions performed by the Hong Kong Institute of Certified Public Accountants.
We plan to introduce the amendment bill into LegCo (Legislative Council) as soon as possible this year.
The end result will benefit the health, stability and international standing of Hong Kong’s financial centre. And I count on you, count on your continuing support in realising this very important bill.
Financial Secretary Paul Chan gave these remarks at the Financial Reporting Council 10th anniversary cocktail reception on July 13.