Regulatory oversight in Hong Kong failed to keep up with international practices according to a report by the Hong Kong Financial Reporting Council (FRC).
The FRC had commissioned the report to Deloitte UK in order to assist the government in drafting reforms to enhance the independence of Hong Kong’s audit regulatory regime.
The report found that Hong Kong does not currently meet the requirements for membership of the International Forum of Independent Audit Regulators (IFIAR) nor does it currently meet the European Commission (EC) regulatory equivalence requirements.
Seven gaps for which Hong Kong falls behind international practices are detailed in the report. Amongst which the governance structure of the Hong Kong Institute of Certified Public Accountants (HKICPA) and its source of funding.
While most major jurisdictions around the world have toughened their audit oversight following the Enron scandal by putting in place independent regulators, Hong Kong retained a system of self-regulation.
FRC chairman John Poon said: "Following the collapse of Enron in 2002, the global audit regulatory framework has undergone a significant evolution over the past decade and is still evolving. Independent audit oversight has become the norm for international financial centres such as the United Kingdom and the United States."
He added that the report confirmed that 40 jurisdictions around the world met both regulatory and membership requirements of the EC and the IFIAR. "Our report further explains the areas of our audit regulatory regime which require enhancement in order for Hong Kong to achieve the same status," he said.
The government is expected to lead a public consultation in 2014 on the issue.
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