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Members and Qualification Programme students are encouraged to complete the survey on the further reform of regulatory regime of accounting profession. More information on the Reform webpage.

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Further reform of regulatory regime of accounting profession

The current functions and powers of the Financial Reporting Council (FRC) became effective on 1 October 2019 when it assumed responsibility for regulation of audits of Public Interest Entities (PIE), mainly companies listed in Hong Kong.  Under the current regime the FRC has powers to inspect, investigate and discipline PIE auditors. More information about the reform and the Institute’s relationship with the FRC can be found on this webpage.

 

The Secretary for Financial Services and the Treasury announced further reform of the regulatory regime of accounting profession (the Reform) on 8 June 2021. The changes proposed by the Reform are extensive and significant. This page brings together relevant information to help members understand the proposals and the potential consequences for the Institute and its members.

 

Legislative timeline

An amendment bill introducing the reforms will be introduced within the legislative year, according to the administration’s paper on the Reform tabled for discussion at the Legislative Council’s (LegCo) Panel on Financial Affairs’ 5 July 2021 meeting. Subsidiary legislation will follow in 2022 to provide for the detailed transitional and operational arrangements.  

 

The background brief prepared by the LegCo Secretariat summarizes previous discussions by LegCo members on the work of the FRC and the implementation of the PIE auditor regulatory reform effective since October 2019.   

 

The government submitted the brief on the Financial Reporting Council (Amendment) Bill 2021 to the Legislative Council on 14 July 2021. The Financial Reporting Council (Amendment) Bill 2021 was gazetted on 16 July 2021 with first reading at the Legislative Council meeting on 21 July 2021. See the government’s press release on the gazettal. 

 

House Committee considered the report by LegCo secretariat on 23 July and decided to form a Bills Committee  to study the Bill. 

 

About the Reform

Institute Council members met with Mr. Christopher Hui, Secretary for Financial Services and the Treasury, and his team from the Financial Services and the Treasury Bureau on 17 June 2021. At the meeting, the secretary explained the Reform, the Government’s rationale, and the timeline for implementing the Reform. These points are summarized below.

 

The secretary explained that the Reform intended to strengthen the regulatory regime by ensuring all regulatory powers are vested with an independent statutory body, i.e. the FRC, which will be renamed the Accounting and Financial Reporting Council (AFRC). The intention is to also rationalize the roles of the Institute and the AFRC to enhance efficiency and consistency, ease the compliance burden on practice units and CPAs and align with international practices.

 

The AFRC will have the registration powers covering all practice units, and PIE auditors, and also the issuance of practising certificates. The AFRC will 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 in respect of CPAs and practice units.

 

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 (CPD) requirements.

 

There will be a transitional period when the Institute will finish practice reviews, investigations and disciplinary cases that are in progress at the effective date of the transfer of powers.

 

With the above 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 profession, maintain the quality of entry to the profession through its CPA qualifying process, providing continuing education and professional development, and supporting its members in their careers.

 

The two presentations of the FSTB and FRC from the members’ forums (see below) contain more information on the reforms.

 

Our initial observations

The information provided on the Reform includes very little detail about operational matters, including how the transfer will take place, and how the AFRC will exercise its additional powers.  More detail is unlikely to be available until the draft legislation is available and during the subsidiary legislation stage.  

 

The following three matters prepared by the Institute may provide additional information:

 

  • A timeline of auditor regulation development in Hong Kong.
  • A summary of the effects of the proposed transfer of regulatory functions and powers.
  • The FSTB has explained that one of the justifications for the Reform is to bring regulation of the accounting profession in Hong Kong in line with international practices.  As communicated in our second email to members our own review of regulatory arrangements in other jurisdictions indicates that there is no one approach, although a common feature is independent regulation of PIE auditors. 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.

The Institute’s actions

Below are links to the Institute’s messages and other actions undertaken since the Reform was announced.

 

Communications

 

Email messages to members

Date
Message
14 July 2021  Survey and dedicated webpage on the Further Reform of Regulatory Regime of Accounting Profession 
21 June 2021
Update on the regulatory regime reform proposals and upcoming Members’ Forum 
11 June 2021
The Institute responds to proposed new regulatory regime 

Press release

The Institute calls on the Government to undertake “further reform of regulatory regime of accounting profession” after extensive consultations and assessment of all its impacts, 11 June 2021

 

Members' forums

 

 

The Institute held two members’ forums on the Reform.

 

FSTB forum

At the first forum on 28 June 2021, representatives from the Financial Services and the Treasury Bureau explained the proposals and took questions from the audience. The recorded forum and presentation are linked below. 

 
Survey

Council considers that it is important that the views of all members and registered Qualification Programme students are considered and communicated to the Government ahead of any changes, the Institute has prepared a survey to collect this valuable feedback. 

 

Members and registered Qualification Programme students can access the survey through this link (login required). Before completing the survey, you should read the information on this page to better understand the Reform. 

 

The survey will close on 4 August 2021. The results and findings will be announced in due course.

 

If you have any problems accessing or completing the survey, please contact itsupport@hkicpa.org.hk.

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