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August 12, 2010

HKICPA calls for rethink to law changes

The Hong Kong Institute of Certified Public Accountants (HKICPA) is calling on the Hong Kong government to rethink proposed changes to financial reporting for SMEs and auditors’ access to information.

The Hong Kong government is currently revising the region’s company laws (Companies Ordinance).

The HKICPA said it supports the proposed tightening of corporate governance and regulation, but is concerned about two issues that relate to accounting and audit.

Financial reporting

Hong Kong has a three tier financial reporting regime. Listed companies use standards based on IFRS, non-listed large and medium-size companies use standards based on IFRS for SMEs, and small companies use simple local GAAP.

To qualify to use local GAAP, companies must meet two of three criteria: total revenue of less than HK$50m, total assets of less than HK$50m or less than 50 employees.

The government has proposed to extend the use of the local GAAP to groups of small private companies and private companies that do not qualify as small companies by the size criteria if shareholders holding at least 75 percent of the voting rights resolve to do so and no other shareholders object.

The HKICPA does not agree, arguing that the small company reporting standards were designed with small, single private companies in mind, which are likely to have simple accounts for which historical information is adequate.

Larger companies or groups of companies using this standard may not disclose enough information to show the financial performance and position of those companies, the institute said.

Audit access

The HKICPA is also concerned about a government proposal that auditors be allowed to interview employees and ex-employees at any level.

The HKICPA suggested that these interviewees may not be able to provide the necessary information and that subjecting the company or its employees to criminal sanctions could be unfair.

 

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