Press Release
Consultation Paper on proposals to enhance oversight of auditors and quality of financial reporting
September 19, 2003
As part of the promotion of a more transparent and accountable regulatory regime for the accounting profession and to improve the quality of financial statements of companies, the Administration today (September 19) released a Consultation Paper on proposals to enhance the oversight of the accounting profession and establish a Financial Reporting Review Panel (FRRP).
Introducing the Consultation Paper, the Secretary for Financial Services and the Treasury, Mr Frederick Ma said, "High-quality and reliable financial reporting is the key to underpinning investor confidence, and the accounting profession are the first line of defence against the pressures of defective financial reporting."
"The Administration is acutely aware of the need to ensure an effective, transparent and accountable regulatory regime for the accounting profession. Such a regime should also be in line with international developments," he said.
"In line with international developments, we need to enhance the element of independent oversight. I highlighted this need last December when I met with the members of the accounting profession to discuss ways to improve the existing regime. We are glad to see that the accounting profession shares our concerns and the Hong Kong Society of Accountants (HKSA) has taken upon itself voluntarily to respond to these concerns by enhancing the independence and transparency of the HKSA Council and Investigation and Disciplinary Committees through a Members' Bill. These measures are a step in the right direction" Mr Ma said.
Oversight of Public Interest Activities of the Accounting Profession
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The HKSA also proposed setting up an Independent Investigation Board (IIB) to monitor and consider complaints of alleged accounting, auditing and/or ethics irregularities committed by professional accountants involving listed companies.
Noting that the proposal would have repercussions not only for professional accountants but also for other parties including regulators, issuers, investors and other financial data users, Mr Ma said, "Before taking a decision on this proposal, we believe it is important to listen to public views on the need for such an entity, its remit, composition, powers and functions, institutional form and funding arrangements."
The practice review process is another area identified in the Consultation Paper as deficient in independent oversight in the current regime. "At present, the Practice Review Committee of HKSA, which carries out quality control of audit practices, is comprised solely of professional accountants. To ensure that there is independent oversight of the practice review programme and that the Committee's operational procedures are fair, reasonable and consistently applied, we see merit in setting up an independent practice review oversight body within the HKSA, comprising mainly lay members," Mr Ma said.
The proposed body would provide independent oversight of the practice review process both in terms of substance and form," Mr Ma added, "However, it will be important to have appropriate governance and transparency arrangements in place and to get the statutory institutional and funding arrangements right."
Comments are invited on the constitution, membership, scope of work and funding arrangements for such an entity.
"In developing the oversight proposals in the consultation paper, we have been mindful of international developments. We note that international principles and guidelines do not envisage a one-size-fits-all approach. The oversight reforms in other jurisdictions are at an early stage of development. In all the jurisdictions we have examined, independence and transparency feature prominently in the regulatory regime. Independence usually comes in the form of having non-accountants on the oversight bodies and stipulating the constitution, governance and funding arrangements in law. Transparency takes the form of reporting activities to the public," Mr Ma explained.
Panel to examine financial statements of companies
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Today's Consultation Paper also seeks public views on the detailed proposals for setting up a Financial Reporting Review Panel (FRRP) to examine the financial statements of companies to determine whether they comply with the accounting requirements of the Companies Ordinance. Where necessary, the FRRP could secure revision of the original accounts through the courts.
The proposal to create an FRRP in Hong Kong was first broached in the context of the Standing Committee on Company Law Reform's Phase I Corporate Governance Review. There was general support for the proposal, but as there are different options on the detailed set up, the Administration found it prudent to listen to public views before finalizing its design.
Views are sought on the ambit of the FRRP's activities; the types of companies and financial documents to be covered; the mode of establishment, powers and composition; whether it should adopt a reactive or proactive approach in its work; its governance and its funding arrangements.
"The proposals on enhancement of the oversight of the accounting profession and establishment of the FRRP complement each other. The IIB and the practice review oversight body would focus on the public interest activities of the accounting profession while the FRRP's remit would cover a company's financial statements. Public views are welcome to enable the taking forward of these proposals," Mr Ma said.
The consultation paper can be downloaded from the website of the Financial Services and Treasury Bureau at The consultation period ends on October 31, 2003.
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