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Implementing a new accounting regulatory regime and improving the election arrangements of the HKICPA Council

With the passage of the Financial Reporting Council (Amendment) Bill 2021 by the Legislative Council in October 2021, the major regulatory functions and powers of the Hong Kong Institute of Certified Public Accountants (HKICPA) will be transferred to the Financial Reporting Council (FRC), thus enabling the FRC to become a full-fledged independent regulatory and oversight body under the new name of Accounting and Financial Reporting Council (AFRC). This has opened a new chapter for the regulatory regime of the accounting profession in Hong Kong. Building on its past success, the HKICPA will focus on setting standards for the sector and promoting the long-term development of the profession under the reformed regime. By engaging in its work such as registering certified public accountants (CPAs), providing training and conducting examinations for CPAs, and setting continuing professional development requirements as well as standards on professional ethics, accounting, auditing and assurance, the HKICPA will continue to play an important role in enhancing the professional standards of the industry, solidifying our role as an international financial centre.

After the passage of the Bill, we have commenced the work on relevant subsidiary legislation and transition arrangement. During the run-up to the implementation of the new regime, members of the accounting sector shared with me their concerns about the governance effectiveness and election method of the HKICPA Council. In particular, Hon Nelson LAM Chi-yuen wrote to me suggesting that the Financial Services and the Treasury Bureau (FSTB) review and amend the legislation in relation to the Council election, so as to improve the election arrangements in respect of nomination procedures, eligibility of candidates, time of election and interval between elections. In this connection, FSTB has recently consulted Hon Nelson LAM Chi-yuen, Hon Edmund WONG Chun-sek, the HKICPA Council and several accounting industry organisations in the past two months, seeking their views on the reform directions in two rounds of consultations. To enable the HKICPA to better perform its professional functions under the new regime, and build a closer working relationship with the AFRC serving as an important communication and bridging role, stakeholders from the accounting industry mostly agreed that appropriate amendments should be made to the existing election method. Industry representatives believe that this can also effectively prevent the professional image and position of our accounting sector from being tarnished due to politicisation in the HKICPA’s elections, and deviations from professional principles. Major views collected during the consultations are as follows.

1. Nomination threshold for election to the HKICPA Council: According to the existing requirements stipulated in the legislation, a CPA who intends to become a candidate for election to the Council has to be nominated by two CPAs (one as the proposer and the other as the seconder). This requirement remains unchanged since the relevant legislation was enacted in 1973, although the number of accountants has increased. For the HKICPA with a membership of over 40 000 CPAs currently, the threshold of securing only two CPA nominations is too low and it is suggested that the number of nominations should be increased.

There are also views that a prospective candidate should obtain nominations from major stakeholders of the accounting sector other than the HKICPA members, so as to better ensure that he/she can live up to the expectations of the sector and relevant stakeholders. Some industry members also hope that a nomination review committee comprising major stakeholders of the accounting profession could be set up to review the qualifications of a candidate and determine whether he/she is fit to discharge the statutory functions of the HKICPA.

2. Election cycle for elected members: At present, an elected member of the HKICPA Council holds office for two years, and seven elected members will retire from office every year. The HKICPA will hold the Council election every November/December to fill the seven vacancies. There are views that as quite a lot of resources and manpower are required for holding the annual election, the Council may find it difficult to focus on professional issues. The lack of stability in Council membership also hinders the efforts of the elected members in taking forward the key areas of work and the long-term planning they proposed.

3. Administrative procedures of the HKICPA: The HKICPA has expressed that since the existing requirements on the procedures of general meetings stipulated in the legislation do not permit the holding of meetings in virtual or hybrid (i.e. physical and virtual) mode, operational difficulties might arise during the epidemic. Hence, there are calls for amending the legislation to provide flexibility in this respect. We will consider amending the relevant provisions on the procedures of general meetings to allow greater flexibility for the HKICPA in conducting such meetings going forward.
Our next step is to put forward the above three recommendations on revising the election arrangements of the HKICPA Council taking into account the views collected in the two rounds of consultation, and further consult major stakeholders of the accounting sector. In drawing up the recommendations, we will give full regard to facilitating the HKICPA’s fulfilment of its professional role under the new regulatory regime without imposing unnecessary burden on it, while respecting its practice to deal with profession-related matters on its own.

Apart from the election arrangements of the HKICPA Council, the accounting sector has been, like other sectors of the community, striving to overcome the different challenges arising from the epidemic. In this regard, we will continue to provide support for the sector and facilitate its participation in the Compulsory Universal Testing Programme, for example the Inland Revenue Department has further extended the due date for filing Profits Tax returns for loss cases with Accounting Date Code “M”. Moreover, the Hong Kong Exchanges and Clearing Limited (HKEX) has provided guidelines for listed companies on holding online general meetings as a supportive measure. Relevant departments and regulators will also continue to collect views from the industry and consider introducing other facilitative measures to support the industry in combating the epidemic.

8 March 2022