The Accounting and Financial Reporting Council (AFRC) has issued an open letter to all public interest entity (PIE) auditors that serve as reporting accountants for companies preparing to list on the Stock Exchange of Hong Kong.

The regulator said the latest wave of initial public offerings (IPOs) has further underscored the role of PIE auditors in driving the “growth and dynamism” of Hong Kong’s capital markets.

At the same time, the AFRC warned that this acceleration has created unprecedented challenges in maintaining high-quality audits.

It stresses that PIE auditors have a central role to play in protecting audit quality, maintaining independence and integrity, and supporting public confidence in Hong Kong’s capital markets.

The AFRC also noted that some companies have accepted an exceptionally high volume of IPO engagements on top of their existing PIE work.

The letter said that this expansion raises serious questions about whether these auditors have the requisite competencies and capabilities to diligently fulfil their professional responsibilities without compromising audit quality.

The council also sets out what it expects from PIE auditors involved in listings, and reiterates that their work is essential to the reliability of financial reporting and the credibility of the market.

Among these expectations is a requirement to put audit quality and integrity above all other considerations.

Auditors are also expected to demonstrate that they have adequate technical expertise and manpower for IPO assignments, together with a commitment to sustainable resources management to protect audit quality.

The AFRC also pointed to PIE auditors’ critical role as the engagement partner and engagement quality reviewer.

It urged PIE auditors to immediately undertake a thorough evaluation of their resources and critically assess whether they possess the necessary competencies and capabilities to deliver high-quality audits for their existing and new IPO engagements.

The regulator will also ask companies to provide an updated schedule of their current IPO projects, any intentions to accept further IPO appointments, and information on how these engagements are resourced.

The AFRC said it will closely monitor how PIE auditors are managing their growing portfolios while maintaining audit quality, independence, integrity and professionalism.

It added that practices that fall short of its expectations should expect heightened scrutiny and regulatory intervention.