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Further reform of regulatory regime of accounting profession

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 introduced by the Reform through the Financial Reporting Council (Amendment) Bill are extensive and significant. The bill was passed by the Legislative Council on 22 October 2021 and will become effective at a later date. This page brings together relevant information to help members understand the potential consequences for the Institute and its members.

 

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 earlier reform and the Institute’s relationship with the FRC can be found on this webpage.

 

 

Latest developments

Primary legislation necessary for the new regime, and subsidiary legislation to account for the transitional period have been passed by the Legislative Council. Please watch this space for any further updates before the new regime becomes effective.

 

Revised Statement of Protocol on Oversight Arrangement to reflect broader oversight by the AFRC
On 16 August, the FRC, which will be renamed the Accounting and Financial Reporting Council (AFRC), and the Institute signed a Revised Statement of Protocol on Oversight Arrangement (Revised Statement of Protocol) which was witnessed by Mr. Christopher Hui, Secretary for Financial Services and the Treasury.

The Revised Statement of Protocol includes the AFRC’s broader responsibilities to oversee the Institute’s performance of its statutory functions under the further reform of the regulatory regime of the accounting profession which commences on 1 October 2022. 

Further details are available here

 

Subsidiary legislation
On 6 May 2022, the Government announced the gazettal of three pieces of subsidiary legislation. The subsidiary legislation was tabled before the Legislative Council at its sitting on 11 May 2022 for negative vetting. The vetting period for the subsidiary legislation expired on 29 June 2022, and there will be no further amendments.

 

2022 renewal

For 2022, the renewal of membership and  practising certificate and registration of practice units stay with the Institute. After the new regime becomes effective, the Institute will remain the CPA registration body and the FRC will issue and renew practising certificates and register practice units. 

 

Engagement and Consultation Paper

On 9 March 2022, the Financial Reporting Council (FRC) launched its Engagement and Consultation Paper on further reform of the accounting profession, which provides explanation of its regulatory principles and proposals under the reformed regime. The consultation closed for comments on 4 May 2022.

On 23 June 2022 the FRC published the conclusions on consultations relating to the future disciplinary process of the Accounting and Financial Reporting Council (AFRC) and guidelines and policies on sanctions and pecuniary penalties applied to PIE Auditors, Registered Responsible Persons and Professional Persons. 

 

Following extensive engagement with relevant stakeholders the FRC received 20 submissions from a range of respondents, the majority of which supported the regulatory principles behind the FRC’s proposals. Having considered the feedback received the FRC has made appropriate amendments to the consultation documents to address some of the comments made and clarify the intent and practical aspects of the proposals.

 

The key points included in the Institute’s response to the consultation, primarily concerning clarification of certain aspects of the AFRC disciplinary process and determination of sanctions, have been addressed in the amendments made to the policies, processes and guidelines. The Institute appreciates the FRC’s overall approach to the consultation and responsiveness to consultation feedback.

 

The relevant disciplinary policies applicable to PIE auditors and registered responsible persons will come into effect on 24 June 2022, whereas those applicable to professional persons (i.e. CPAs and practice units) will take effect after the commencement of the new regulatory regime on 1 October 2022.

 

Quick guide to the Reform

Read the quick guide to the Reform for an overview of the changes to the regulatory regime. 

 

See below for more information about the new regulatory regime.

 

Legislative timeline

Date  Activity 
1 October 2022
Reform becomes effective.
29 June 2022 The negative vetting period expired for the three pieces of subsidiary legislation relating to the implementation of the new regulatory regime for the accountancy profession gazetted on 6 May 2022. The three pieces of subsidiary legislation are in effect with no further amendments.
6 May 2022
The Government published in the Gazette three pieces of subsidiary legislation, namely the Financial Reporting Council (Amendment) Ordinance 2021 (Commencement) Notice (Commencement Notice), the Accounting and Financial Reporting Council (Transitional and Saving Provisions and Consequential Amendments) Regulation and the Accounting and Financial Reporting Council Ordinance (Amendment of Schedule 3B) Notice 2022 (Schedule 3B Amendment Notice), for the commencement of the new regulatory regime of the accounting profession.

The three pieces of subsidiary legislation will be tabled before the Legislative Council at its sitting on 11 May, 2022, for negative vetting.
9 March 2022 The Financial Reporting Council launched its Engagement and Consultation Paper on further reform of the accounting profession
22 October 2021
The bill was passed by the Legislative Council. 

According to the Financial Services and the Treasury Bureau, the Government will introduce subsidiary legislation to provide for transitional and technical arrangements in 2022. The effective date of the new regime is yet to be announced. 

The Institute will continue to engage with the Financial Reporting Council as we prepare for the implementation of the new regulatory regime.
14 September 2021  The fourth Bills Committee meeting took place on and responded to views towards the bill. For details, please refer to the Summary of views of submissions and the Administration's response.

The submissions on the bill, the Government’s responses, the discussion of the Bills Committee as well as webcast of the Bills Committee are available on the Bills Committee’s website
7 September 2021
Ahead of the Bills Committee meeting, the Institute’s submission has been published.
31 August 2021
The second Bills Committee meeting took place and asked questions about the bill.
12 August 2021
The Bills Committee met for the first time and opened invitations for submissions on the bill until 3 September 2021.
23 July 2021 
House Committee considered the report by LegCo secretariat and decided to form a Bills Committee to study the bill.
21 July 2021 First reading at the Legislative Council meeting.
16 July 2021 The Financial Reporting Council (Amendment) Bill 2021 was gazetted. See the Government’s press release on the gazettal.

 

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 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.

 

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
 27 April 2022 Updates on the further reform on the regulatory regime of accounting profession and review of the Institute’s Council election
21 March 2022 Join the members' forums on further reform of the accounting profession
19 November 2021 First meeting on regulatory reform transitional arrangements takes place
22 October 2021 Preparing for the next stage of the regulatory reform
6 September 2021 Institute submission on the Financial Reporting Council (Amendment) Bill 2021 now available
27 August 2021 Updates on the further reform on the regulatory regime of accounting profession
27 July 2021 Complete our survey on the proposed further regulatory reform of accounting profession
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

FRC and HKICPA sign Revised Statement of Protocol on Oversight Arrangement to reflect broader oversight by the AFRC, 16 August 2022

 

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

 

President’s video

President Raymond Cheng has recorded a video to encourage members to study the information on the webpage and complete the survey.

 

Members' forums

 

FRC, PIEAA & SCAA forums
To provide members with a better understanding of the Engagement and Consultation Paper launched by the Financial Reporting Council, the Institute will jointly organize three members’ forums on 4, 7 and 11 April 2022 with the FRC, Hong Kong Association of Registered Public Interest Entity Auditors Limited (PIEAA) and Society of Chinese Accountants and Auditors (SCAA) respectively for different groups of audiences. Refer to the e-mail for more details. The recorded forums are linked below, and presentations will be available soon. 

 

4 April session - Members' Forums on Further Reform of the Accounting Profession for PIE Auditors

7 April session - Members' Forums on Further Reform of the Accounting Profession for Non-PIE Practice Units

11 April session - Members' Forums on Further Reform of the Accounting Profession for CPAs 

 

The Institute also 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. 

 

FRC forum

At the second forum on 6 July 2021, representatives from the Financial Reporting Council discussed how they plan on regulating the profession. 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. To collect this feedback, the Institute conducted a survey. The survey closed on 4 August 2021 and the findings were announced in an email.

 

Extraordinary general meeting

In view of the results of the survey of the profession about the reform, and in accordance with Professional Accountants By-Law 13(1), the Council resolved to call an extraordinary general meeting (EGM) of the Institute. The EGM took place on 30 September 2021. The minutes and background information are available on the EGM 2021 webpage

 

Background information

The following three matters prepared by the Institute provides additional information on the Reform:

  • A timeline of auditor regulation development in Hong Kong.
  • A summary of the effects of the proposed transfer of regulatory functions and powers.
  • High level summary of international practices.  
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