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To Ensure Audit Quality by Tackling Long-Standing Issue

Renowned for its undisputed professionalism, Hong Kong’s accounting sector has been the cornerstone of the city’s status as an international financial centre.  The implementation of the new regulatory regime for the accounting profession in October 2022 has further rationalised the regulation and development functions in relation to the profession.  The Financial Services and the Treasury Bureau (FSTB) has been liaising closely with the industry through the Accounting and Financial Reporting Council (AFRC) and the Hong Kong Institute of Certified Public Accountants (HKICPA) to promote the industry’s development.  We also join hands to formulate strategies for combating audit irregularities in order to ensure audit quality and industry reputation.


The issue of “bogus accountants” has long been a concern to the accounting industry.  The FSTB is determined to tackle this long-standing issue in collaboration with the Inland Revenue Department, the AFRC and the HKICPA.  “Bogus accountants” apparently refer to unlicensed persons who pretend to be certified public accountants (practising) (CPA(P)) to provide audit services and, in so doing, commit a criminal offence.  What is even more common, however, is that some CPA(P)s undertake a large number of audit assignments through intermediaries (commonly known as “tang zai”) and sign off on the auditor’s reports indiscriminately.  Such black sheep, even a handful of them, can undermine the overall quality and credibility of financial reporting in Hong Kong, damaging the reputation of the accounting industry.  From the perspective of public finance, auditor’s reports are one of the assessment criteria that underpins many government policies (including tax policies) and funding schemes.  Therefore, auditor’s reports falling short of professional standards may impair the efficacy of the Government’s management of public finances.


Based on regulatory and enforcement experience and the industry’s observations, the challenge of handling such irregularities lies in the lack of sufficient evidence to accurately track down the persons involved.  In view of this, we are working with relevant organisations to implement the following measures:
 

(i)     Revising the Hong Kong Standards on Auditing to require all auditor’s report signatories to have their practising certificate number stated in the auditor’s reports; and 

(ii)    Requiring Hong Kong-incorporated companies to state in their profits tax returns the practising certificate number of their auditor’s report signatories.


Requiring the disclosure of practising certificate number by auditor’s report signatories is expected to have “deterring, tracking and combating” effects: 

  • Deterrent effect –By enhancing the accountability of auditor’s report signatories, the measures will serve as a deterrent for accountants who sign off on the auditor’s reports indiscriminately and bogus accountants;

  • Tracking effect – The measures, complemented by the existing register of CPA(P)s maintained by the AFRC, will enable the public and enforcement units to identify and track down auditor’s report signatories; and

  • Combating effect – The measures will facilitate enforcement units’ work so that they can determine the scope of investigation more precisely and combat irregularities in a timely manner.


The above measures are targeted to come into operation in the year of assessment 2024/25 upon completion of the market consultation.  We look forward to the support and co-operation of the community and the accounting industry in safeguarding the steady and orderly development of the accounting profession in Hong Kong.

 

23 October 2024