Accounting and Financial Reporting Council
{{short description|Hong Kong statutory body}}
{{Use Hong Kong English|date=July 2017}}
{{Use dmy dates|date=May 2025}}
{{Infobox government agency
| agency_name = Accounting and Financial Reporting Council
| nativename_a = 會計專業獨立監管機構
| logo = Accounting and Financial Reporting Council.svg
| logo_width =
| logo_caption =
| image = Two Taikoo Place.jpg
| image_caption = Headquarters at Two Taikoo Place
| type =
| seal =
| seal_width =
| seal_caption =
| formed = {{Start date and age|df=yes|2006|12}}
| preceding1 = Financial Reporting Council
| jurisdiction = Hong Kong
| headquarters = Two Taikoo Place, Quarry Bay, Hong Kong
| employees =
| chief1_name = David Sun
| chief1_position = Chairman
| chief2_name = Janey Lai
| chief2_position = CEO
| website = https://www.afrc.org.hk/
}}
The Accounting and Financial Reporting Council (AFRC) of Hong Kong is the statutory body charged with regulating the accounting profession in Hong Kong. It oversees the performance of the Hong Kong Institute of Certified Public Accountants (HKICPA) with regards to its statutory functions towards accountancy in Hong Kong. Other duties include initiating enquiries into possible non-compliance with accounting requirements and conducting investigations into auditing misconduct. the AFRC is a regulator run independently of the Government of Hong Kong.
History
The Financial Reporting Council Ordinance was gazetted in July 2006 which called for the establishment of a Financial Reporting Council (FRC) to investigate suspected irregularities committed by auditors and reporting accountants of listed entities, and to inquire into non-compliances of listed entities' financial reports with legal, accounting or regulatory requirements.{{Cite web |last=Watson |first=Kate |date=28 September 2006 |title=Council's job is to rebuild trust lost after scandals |url=https://www.scmp.com/article/565631/councils-job-rebuild-trust-lost-after-scandals |access-date=28 May 2025 |website=South China Morning Post |language=en}} Later on that year the FRC was established. It took over from the HKICPA the power to investigate audit failures of listed companies as it was independent from the accountants.{{Cite web |last=Yiu |first=Enoch |date=21 June 2014 |title=Government proposes independent body overseeing accountants |url=https://www.scmp.com/business/banking-finance/article/1537239/government-proposes-independent-body-overseeing-accountants |access-date=28 May 2025 |website=South China Morning Post |language=en}}
In June 2014, the Hong Kong government proposed reforms to expand the powers of the FRC. It would take over the routine inspection and disciplining of auditors of listed companies from the HKICPA. In addition the FRC would change its funding from the government, the HKICPA, the Securities and Futures Commission and the Hong Kong Stock Exchange to levies to be paid by listed companies, investors on stock transactions and listed companies' auditors. The HKICPA expressed concern that the FRC was too powerful if it was performing both the investigation and setting disciplinary action.{{Cite web |last=Yiu |first=Enoch |date=22 December 2014 |title=New {{!}} HKICPA fears audit reform proposals will make regulator 'too powerful' |url=https://www.scmp.com/business/banking-finance/article/1667656/hkicpa-fears-audit-reform-proposals-will-make-regulator-too |access-date=28 May 2025 |website=South China Morning Post |language=en}}
In July 2019, the FRC signed a memorandum of understanding with the Ministry of Finance that would allow it to obtain mainland China audit working papers for its investigations{{Cite news |last=John |first=Alun |date=3 July 2019 |title=Hong Kong, Chinese regulators agree deal on accessing Chinese audit papers |url=https://www.reuters.com/article/business/hong-kong-chinese-regulators-agree-deal-on-accessing-chinese-audit-papers-idUSKCN1TY1G2/ |access-date=28 May 2025 |work=Reuters |language=en-GB}}
In October 2019, the reforms related to power were passed that transformed the FRC into a full-fledged independent auditor regulator. It took over all disciplinary and regulatory inspections of listed companies’ auditors from the HKICPA. It also received HK$400 million from the government to expand its headcount. In the same year.{{Cite web |last=Yiu |first=Enoch |date=16 February 2024 |title=Exclusive {{!}} Hong Kong's accounting watchdog ready to flex regulatory muscle, chairman says |url=https://www.scmp.com/business/banking-finance/article/3251823/hong-kongs-accounting-watchdog-ready-flex-regulatory-muscle-after-accumulating-all-disciplinary |access-date=28 May 2025 |website=South China Morning Post |language=en}}
In December 2020, the FRC obtained its first batch of audit working papers from mainland China becoming the first offshore regulator to break through the state secrecy barrier.{{Cite news |last=Wong |first=Kiuyan |date=10 December 2020 |title=Hong Kong Gets Chinese Audit Papers the U.S. Is Demanding |url=https://www.bloomberg.com/news/articles/2020-12-10/hong-kong-gets-chinese-audit-papers-the-u-s-is-demanding |archive-url=http://web.archive.org/web/20211128001432/https://www.bloomberg.com/news/articles/2020-12-10/hong-kong-gets-chinese-audit-papers-the-u-s-is-demanding |archive-date=28 November 2021 |access-date=28 May 2025 |work=Bloomberg News |language=en}}
In June 2021, the Hong Kong government proposed further reforms for the FRC that granted it additional powers that included regulating the professional conduct of Certified Public Accountants (CPAs), issuing practising certificates to CPAs and overseeing audits of private companies.{{Cite web |last=Lee |first=Georgina |date=8 June 2021 |title=Hong Kong to extend watchdog reach to accountants auditing private firms |url=https://www.scmp.com/business/companies/article/3136533/hong-kong-mulls-extending-top-watchdogs-supervisory-reach |access-date=28 May 2025 |website=South China Morning Post |language=en}} In October 2021, the amendment bill was passed which transformed the FRC into an independent regulatory body for the accounting profession. In addition the name was changed to AFRC.{{Cite web |date=22 October 2021 |title=Letters {{!}} Accounting regulatory overhaul will sharpen Hong Kong's competitive edge |url=https://www.scmp.com/comment/letters/article/3153053/accounting-regulatory-overhaul-will-sharpen-hong-kongs-competitive |access-date=28 May 2025 |website=South China Morning Post |language=en}}
On 1 January 2022, AFRC's proposed funding model based on levies came into effect.
Regulatory actions
In February 2021, the AFRC said it has begun an investigation into the financial statements of Convoy Global Holdings and singled out its auditor, Zhonghui Anda CPA for failing to raise red flags. The move was unprecedented making it the first announcement of such an inquiry since the regulator's establishment in 2006.{{Cite web |last=Yiu |first=Enoch |date=23 February 2021 |title=Convoy's auditor is under regulatory spotlight in Enigma crackdown |url=https://www.scmp.com/business/banking-finance/article/3122832/hong-kongs-regulators-turn-their-scrutiny-convoys |access-date=28 May 2025 |website=South China Morning Post |language=en}}
In October 2021, the AFRC initiated an investigation into PwC Hong Kong's audit of Evergrande Group’s 2020 financial statements. In August 2022, the AFRC expanded the scope of its investigation into the developer's property services arm.{{Cite web |last=Yiu |first=Enoch |date=28 August 2024 |title=Late resignations tarnish Hong Kong auditors' credibility, regulator says |url=https://www.scmp.com/business/banking-finance/article/3276290/late-resignations-lack-scepticism-tarnish-hong-kong-auditors-credibility-afrc |access-date=28 May 2025 |website=South China Morning Post |language=en}} In April 2024, the AFRC said it would launch a new probe into PwC over an apparent whistleblower report from PwC Partners. The report accused PwC of failing to establish and maintain an effective system of quality control to ensure audit quality and compliance with professional standards with regards to Evergrande.{{Cite news |last1=Foy |first1=Simon |last2=Foley |first2=Stephen |last3=Ho-him |first3=Chan |date=19 April 2024 |title=PwC's Evergrande audits set to be subject of new probe by Hong Kong regulator |url=https://www.ft.com/content/19d858ce-a34f-4add-bb67-a0fbd3efa24f |access-date=28 May 2025 |work=Financial Times}} In July 2024, the AFRC said it had not found evidence to support the allegations against PwC in the whistleblower report. However it was still investigating the work for Evergrande itself.{{Cite news |last1=Foley |first1=Stephen |last2=Ho-him |first2=Chan |date=10 July 2024 |title=Hong Kong regulator clears PwC over whistleblower claims but Evergrande probe continues |url=https://www.ft.com/content/e142cffb-437e-4a94-bc64-4cb7b6d2ba9d |access-date=28 May 2025 |work=Financial Times}}
In July 2023, the AFRC stated that the audit quality of small and medium sized audit firms was poor and there was a tendency to cut corners.{{Cite web |last=Yiu |first=Enoch |date=11 July 2023 |title='Unacceptable attitude' of Hong Kong's small auditors imperils hub status |url=https://www.scmp.com/business/banking-finance/article/3227300/unacceptable-hong-kongs-small-auditors-are-cutting-corners-threatening-undermine-citys-finance-hub |access-date=28 May 2025 |website=South China Morning Post |language=en}}
In August 2024, the AFRC stated last-minute resignations and failure to recognise potential problems were the two major issues affecting auditors’ credibility in Hong Kong. Nearly a fifth of the investigations conducted on auditors were related to their late resignations.
See also
References
{{Reflist}}
{{Government of Hong Kong}}
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Category:Accounting organizations
Category:Financial regulatory authorities of Hong Kong
Category:Government agencies established in 2006
Category:Government oversight and watchdog organizations