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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.

 

Institute to hold extraordinary general meeting on reform

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 will take place on 30 September 2021. The formal EGM Notice which sets out the date, time and place of the meeting and the general nature of the business to be transacted, according to By-Law 14 has been sent by post and is available on the EGM 2021 webpage

 

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. 

 

The Bills Committee met for the first time on 12 August and opened invitations for submissions on the bill until 3 September. 

 

The second Bills Committee meeting took place on 31 August and asked questions about the bill.

 

Ahead of the 7 September meeting of the Bills Committee the Institute’s submission has been published.

 

The fourth Bills Committee meeting took place on 14 September and responded to views towards the bill. For details, please refer to the Summary of views of submissions and the Administration's response.

 

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
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

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

 

 

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. To collect this feedback, the Institute conducted a survey. The survey closed on 4 August 2021 and the findings of the survey were announced in an email.

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