It is unsurprising that the HKICPAs will be opposed. The proposal, if it goes into effect, will decimate the profession in Hong Kong. The proposal will also put U.S. based CPA firms that audit many small U.S. listed companies out of the business.
The proposal probably has little overall effect on the Big Four. The Big Four will simply shift their work to the mainland, where the mainland member firm has the expertise and the required U.S. and Chinese licenses to do the work. The Big Four offices in Hong Kong will likely shrink considerably in size.
The Hong Kong Stock Exchange will need to change the rules and allow the Big Four mainland affiliates to sign off on Red Chips and P-Chips, just as they now allow these firms to sign H-Shares.
There is a fatal flaw in the Chinese proposal. It requires that the overseas firm delegate all of the audit work to its mainland member firm yet retain full responsibility for the audit. The HKICPAs points out that would violate the auditing standards under HKSA 600. It would also violate the principal auditor rules of PCAOB auditing standards. The auditor who does the work needs to take responsibility for it and sign the opinion.
The solution to that flaw is for the mainland firm to sign the audit report and take full responsibility for it. That is not a problem for the Big Four China affiliates, and it is probably how they should be doing it today.
I suspect that the PRC proposal is linked to today’s decision against EY related to Standard Chartered. By forbidding HK firms from auditing on the mainland, PRC regulators ensure that audit work papers are not released by the Hong Kong firms to overseas (including Hong Kong) regulators.