• Register
Return to: Home > News > Regulation > Hong Kong's profession takes cautious approach on China’s proposed foreign auditor ban

Hong Kong's profession takes cautious approach on China’s proposed foreign auditor ban

The Hong Kong Institute of Certified Public Accountants (HKICPA) has taken a cautious approach to the consultation launched by the Chinese Ministry of Finance (MOF), which aims at preventing foreign auditors from auditing Mainland Chinese companies.

HKICPA told The Accountant that its response so far focused on alerting firms and professional bodies, informing the Hong Kong Government, as well as tracking responses from other jurisdictions that could be affected by the proposed ban.

"The proposals would have far-reaching business and regulatory consequences on the Hong Kong accounting profession and financial market," HKICPA said.

HKICPA added that access to working papers prepared by Mainland CPA firms "would become a bigger issue" in clear reference to Chinese authorities' reluctance to co-operate with foreign regulators on cross-border audit inspections.

If the proposals are passed into law, Hong Kong and overseas CPA practices would have to partner with one of the top 100 China CPA practices in order to carry out audits for overseas-listed Chinese enterprises.

It would also affect overseas-listed companies, irrespective of their place of incorporation, with operating entities in China.

In particular, HKICPA said the proposals would affect the foreign auditors of all red chip and H-share companies that do not engage a local partner firm.

Red chip companies are enterprises that are incorporated outside of the Mainland, controlled by Mainland Government entities and listed on the Hong Kong Stock Exchange.

H-share companies are companies incorporated in Mainland China and whose listings in Hong Kong are approved by the China Securities Regulatory Commission.

Up to now international and non-Mainland firms could apply for a temporary audit practice certificate to enter Mainland China. But Peking University professor of practice Paul Gillis wrote on is blog dedicated to accounting in China, that this rule was often overlooked by firms.

The proposed rules would abolish the current system of provisional license arrangements.

"The problem has become prominent as some non-Mainland CPA practices violate the rules and perform audit services in China, while some Mainland and non-Mainland CPA practices conclude that their cooperation arrangements show ambiguity or uncertainty in their rights and responsibilities," HKICPA said.

According to MOF's proposals Hong Kong and overseas auditors would take full responsibility for the audits, and audit reports, issued by them and these reports would have no legal effect in China.

If they violate the rules by conducting audit work in China, foreign firms would be asked to stop and be referred to their home country regulators, the MOF's consultation proposed.

MOF's consultation stated the proposed rules were an effort to establish a sound regulatory regime for firms carrying out cross-border audit services.

Related story

Chinese regulators look to ban foreign auditors

Related links

The Hong Kong Institute of Certified Public Accountants

Ministry of Finance of the People's Republic of China



Top Content

    ARGA team, assemble!

    The new top team has been named that will see in root-and-branch reform at the Financial Reporting Council (FRC) as it transforms into the Audit, Reporting and Governance Authority (ARGA). Will the new duo be as dynamic as some are hoping? Robin Amlôt reports.

    read more

    FASB: a quest for simpler standards

    FASB chair Russell Golden addressed the IMA 2019 Annual Conference and Expo at the Sheraton San Diego Hotel and Marina, California, on 18 June. IMA immediate former chair-emeritus Alex Eng acted as moderator. Joe Pickard reports.

    read more

    The future of audit, and how to get there

    Two recent reports peer into the future of the audit profession. One analyses what an audit should offer, while the other looks at how the audit process will be carried out. Robin Amlôt takes a closer look at both.

    read more

    EFAA elects new president, focuses on digital future

    EFAA’s new president, Salvador Marin, outlined his key priorities for the next two years at the organisation’s 2019 annual general meeting, while outgoing president Bodo Richardt offered advice. Robin Amlôt reports.

    read more
Privacy Policy

We have updated our privacy policy. In the latest update it explains what cookies are and how we use them on our site. To learn more about cookies and their benefits, please view our privacy policy. Please be aware that parts of this site will not function correctly if you disable cookies. By continuing to use this site, you consent to our use of cookies in accordance with our privacy policy unless you have disabled them.