Audit teams in Hong Kong are experiencing frequent pressure to reduce audit fees and deliver clean audit opinions, according to the Hong Kong Accounting and Financial Reporting Council’s (AFRC) quarterly report.
The report found that, despite the efforts made by the AFRC to stress the importance of audit quality, listed companies still ranked proposed audit fee as one of the top three factors for choosing an audit company.
Total audit fees in Hong Kong in 2021 were HK$13.1bn (USD1.7bn), representing a compound annual growth rate (CAGR) of 6.0% from 2010.
On a per engagement basis, average and median audit fees were HK$5.4m and HK$2.1m respectively in 2021. When adjusted for inflation, average and median fees show a decline of 20% and 10% respectively since 2010.
Even though the level of audit fees typically reflects the complexity in the underlying business, growth of average audit fees (9%) in Hong Kong between 2010 and 2021 significantly lags behind the growth experienced by listed companies.
The report found that there is a strong association between a change in auditors and a subsequent reduction in audit fees. Out of the 249 and 285 listed companies that changed auditors in 2020 and 2021, 80.7% and 69.5% experienced a fee reduction.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below formBy GlobalData
The Accountant has reached out to the AFRC for additional comment and will update this article accordingly.
Transition to AFRC from the FRC
In September last year, Hong Kong’s Financial Reporting Council transitioned into the AFRC. On 1 October 2022, the AFRC became a full-fledged independent regulator of the accounting profession in Hong Kong.
The reform extended the AFRC’s regulatory power to auditors of all entities in Hong Kong, and all accounting professionals and to oversee all statutory functions of the Hong Kong Institute of Certified Professional Accountants.