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Financial Reporting Council

The Institute and the Financial Reporting Council (FRC) both oversee the auditors of public interest entities (PIEs).

On 1 October 2019 the FRC took over the responsibility for regulating PIE auditors. The FRC regulates PIE auditors through inspection, investigation and disciplinary functions.

The Institute, on the other hand, deals with applications for registration of PIE auditors; and maintains the register of PIE auditors. The Institute also continues to carry out its responsibilities in setting continuing professional development requirements, and auditing and ethical standards for PIE auditors. In respect of these functions, the Institute’s performance are overseen by the FRC.

The Institute remains committed to all its statutory regulatory responsibilities, and will continue to exercise those responsibilities in a rigorous and professional manner.

Protocols governing the relationship between the Institute and FRC

The close and coordinated activities of the Institute and the FRC ensure that the two statutory bodies can work together efficiently. The relationship is overseen by three agreements. 

 

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. 

 

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

The Institute has updated some policy documents and website pages to ensure public information aligns with current practice in respect of adopting international standards changes and update and participation in post-implementation reviews of international and local standards.

 

 

Background information

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.

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