Press release

Public Views Invited on Legislative Proposals to Establish Financial Reporting Council

Monday, February 28, 2005

A public Consultation Paper on legislative proposals to establish the Financial Reporting Council (FRC) was released by the Financial Services and the Treasury Bureau (FSTB) today (February 28).
Introducing the consultation paper, the Secretary for Financial Services and the Treasury, Mr Frederick Ma, said the proposed establishment of the FRC was a key initiative of the Government to maintain an effective, transparent and accountable regulatory regime for the accounting profession, thereby upholding Hong Kong's status as an international financial centre.
"Quality financial reporting is of paramount importance for upholding our corporate governance regime and maintaining investor confidence. The wake of some notable corporate failures in other parts of the world in the past few years has highlighted the importance to strengthen the regulatory regime for the accounting profession in Hong Kong.
"Serving a wider public interest, the FRC will underline its independence in the regulatory oversight of auditors and corporate reporting concerning listed corporations and collective investment schemes," Mr Ma said.
"We also need to have stronger regulatory teeth to enable the FRC to conduct investigations and enquiries more effectively than the existing regime."
Based on the support for the Proposals to Enhance the Oversight of the Public Interest Activities of Auditors and Establish a Financial Reporting Review in the consultation exercise in September 2003, the major legislative proposals as set out in the Consultation Paper released today are:
* To establish the FRC as an independent statutory body comprising, with a lay majority, not more than 11 members including an ex-officio member from the Administration and other members appointed by the Chief Executive.
* To empower the FRC, through the Audit Investigation Board (AIB), to carry out investigations into suspected irregularities concerning auditors of corporations and collective investment schemes listed in Hong Kong, with reference to the powers presently afforded to the SFC under the relevant sections of the Securities and Futures Ordinance.
* To empower the FRC, through the Financial Reporting Review Committees (FRRC), to enquire into suspected non-compliance of the accounts and financial statements of listed corporations and collective investment schemes with relevant legal and accounting requirements.
* To empower the FRC to refer cases and evidence obtained in investigations and enquiries to relevant enforcement agencies, professional accountancy bodies, and the court, if appropriate, for necessary legal and/or disciplinary actions, and,
* To put in place accountability measures corresponding to the powers vested in the FRC.
"The Hong Kong Exchanges and Clearing Limited (HKEx), HKICPA and the Securities and Futures Commission (SFC) responded very favourably to our drive to strengthen the regulatory regime of the accounting profession. The Administration and the three parties have thus agreed to share equally the cost of the proposed FRC," Mr Ma said.
Public views are welcome on the legislative proposals contained in the Consultation Paper. Subject to the outcome of the consultation, the Administration aims to introduce a Bill into the Legislative Council within the 2004-05 legislative session to take forward this initiative.
The Consultation Paper can be downloaded from the website of the FSTB at The consultation period will end on April 15, 2005.

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