Five years ago Hong Kong, once a center of international finance, was demoted by the European Union as a financial regulatory area on a similar footing. Beida accounting professor Paul Gillis applauds that after five years the HK legislators start to move to reform the auditors, but feels the action is far from enough, he writes on his weblog.
Five years ago Hong Kong’s capital markets were dealt a humiliating blow by the European Union (EU). Hong Kong was removed from a list of jurisdictions deemed to have regulatory equivalency with the EU. The move happened because Hong Kong did not have an effective independent audit regulator, since the auditing profession in Hong Kong was self-regulated by the Hong Kong Institute of CPAs. I have written many times about how the HKICPAs is a feckless regulator, reluctant to take on the big firms and when it is finally forced to enforce the rules, doling out miniscule penalties.
It has taken five years, but finally Legco is preparing to take action. The Financial Reporting Council (Amendment) Bill of 2018 is working its way through the legislative process in Hong Kong. Unfortunately, the proposal falls far short of what is needed. I fear that the legislators have fallen into the trap of finding themselves up to their ass in alligators while forgetting that their original objective was to drain the swamp. The proposal has the fingerprints of the profession all over it, and has been weakened to the point of being mostly useless.
There are two key problems from my perspective. The first is the composition of the supervisory board of the FRC. The second is adequate funding to make certain that the FRC can effectively function.
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