The Accounting and Financial Reporting Council (AFRC) in Hong Kong has released an article drawing on insights from transparency reports released by audit companies.

The article, entitled Transparency Reports: Building Trust and Unlocking Audit Excellence, explains how clear and relevant disclosures can help audit committees and investors make informed decisions when appointing auditors.

It also says transparency reports can support the development of high-performing audit teams and strengthen market confidence.

The council notes that robust audits stem from sustained investment by companies in their personnel, values and internal systems.

The article points out that many of the measures underpinning audit quality are not always visible to those responsible for auditor selection. As a result, decisions on appointments and reappointments can become overly driven by fee levels, rather than by a considered evaluation of an audit company’s approach to audit quality.

The AFRC says transparency reports aim to close the information gap by explaining how audit companies are run, manage audit quality, invest in people and technology, and protect ethics and independence.

Making these details public is also seen as a way to give audit partners and staff greater clarity on how quality expectations are established and maintained within their companies.

AFRC CEO Janey Lai said: “Audit quality is the cornerstone of public trust in financial reporting. Transparency reports reveal how audit firms are structured and governed to safeguard that trust.

“By making the drivers of audit quality visible, audit firms signal their leadership and strengthen public confidence in audits.

“Transparency reports also enhance staff engagement by highlighting the firm’s investment in their development, reinforcing a culture where people feel supported to deliver quality work.”

The council notes that transparency reports issued by Hong Kong audit companies generally cover four areas: governance and leadership, quality management arrangements, talent management and technology, and ethical values and safeguards for independence.

AFRC chairman David Sun said: “I encourage registered public interest entity auditors to proactively publish transparency reports.

“This would signal a collective commitment to uphold market integrity, strengthen investor confidence and reinforce Hong Kong’s role as a leading international financial centre.”