“Likewise, the number of investigations we can handle is getting higher, which is reflected in our higher headcount and budget.”
The AFRC, formerly known as the Financial Reporting Council, was first set up by the Hong Kong government in 2006. But back then it only handled investigations, while other regulatory functions were carried out by the Hong Kong Institute of Certified Public Accountants (HKICPA).
Following reforms in 2019, the council took over all disciplinary and regulatory inspections of listed companies’ auditors from the HKICPA, while it also received HK$400 million (US$51 million) from the government to expand its headcount from just 25 staff five years ago to 145 currently.
Last year, the council further expanded its role to cover private companies’ accounting and audit-quality problems.
With the added resources and manpower, Wong said the AFRC has been enhancing the quality of the profession by issuing policy research and guidelines, and also establishing strategic cooperations with other local, mainland Chinese and overseas regulators.
US watchdog fines PwC affiliates, Chinese firm US$8 million for audit failures
US watchdog fines PwC affiliates, Chinese firm US$8 million for audit failures
Wong pointed out the report was based on a first round of reviews of all accounting firms in Hong Kong in the 2020 to 2022 period.
“The second round of reviews from 2023 to 2025 should have improvements, as we have informed the firms about their deficiencies,” he said.
“The same trend happened in overseas markets, as the first round of inspections usually have more problems as the firms are not familiar with the requirements of regulators and it takes some time for them to climb the learning curve.”
More Hong Kong firms are getting their ESG reporting checked by auditors: survey
More Hong Kong firms are getting their ESG reporting checked by auditors: survey
Wong reiterated that the AFRC would work closely with mainland regulators to get documents from mainland accounting firms to conduct its investigations. Currently, it takes about a year for the Hong Kong regulator to get the audit papers needed for its investigations, which is too long, he said.
China’s broadly defined laws on state secrets extend to auditors’ working papers and auditors are currently banned from taking such documents out of the country for inspection by overseas regulators.
US accounting regulator finds ‘unacceptable rate’ of shortcomings in mainland China audits
US accounting regulator finds ‘unacceptable rate’ of shortcomings in mainland China audits
“The tougher requirements for data-storage locations, in fact, would be helpful when the Ministry of Finance will need to collect documents for us, as the mainland regulators can easily identify where the papers are located,” he said.
China and the United States reached a landmark agreement that allowed the US Public Company Accounting Oversight Board to inspect auditors’ work involving more than 100 Chinese companies in Hong Kong in 2022.
Hong Kong to maintain highest fine of US$1.3 million for audit lapses at listed firms
Hong Kong to maintain highest fine of US$1.3 million for audit lapses at listed firms
“The AFRC will provide help or facilitation if any overseas regulator wants to audit the work of firms registered with the AFRC,” Wong said.
The AFRC plans to host in the fourth quarter its first regional regulatory forum, which will invite audit and securities regulators from different jurisdictions to discuss how to promote audit quality and exchange of information.
“The forum will provide a platform for peer regulators to learn and share their experiences,” Wong said.
“It will also promote Hong Kong as a competitive international financial centre, and will also tell a good story about why Hong Kong’s independent audit regulatory regime might enhance financial reporting quality and public trust.”
