The Securities and Futures Commission (SFC) in Hong Kong has released a report on independent audit oversight. I have been calling for reform of Hong Kong’s notoriously weak system of audit regulation and this is a welcome development.
Hong Kong has retained a system of self-regulation of the profession by the Hong Kong Institute of CPAs. The rest of the world learned its lesson after the Enron scandals of the last decade and toughened the oversight of auditors by putting in place independent regulators. Hong Kong accountants succeeded in preserving control of the process by conceding only to symbolic reforms. With the rise of the importance of the Hong Kong Stock Exchange to world financial markets and the increasing number of accounting frauds in Hong Kong and China, reform of the oversight of the accounting profession is critical.
SFC retained Deloitte to prepare the report. While I had concerns about the letting the fox guard the henhouse, Deloitte has done a commendable job. The report is fair, and calls for the reforms that I think are necessary.
Those reforms would create an independent audit regulator in Hong Kong that is not under the influence of the profession. It is important that the regulator inspect the quality of audits and have the power to punish firms with poor audit quality. The process needs sufficient transparency such that there is public accountability. Hong Kong legislators need to be wary of pressures by the accounting profession to weaken these reforms.
John Yoon, Chairman of SFC said: “We remain committed to actively supporting the process leading to the successful completion and implementation of independent audit oversight reform in Hong Kong.”
Well done SFC!