Home' A Plus Magazine : November 2013 Contents 18 November 2013
“I think people
were still trying to
absorb and try to
going on – but
since then we have
questions for them
to look at particular
aspects and help
on key issues.”
THE MISSING PART
OF THE PACKAGE
The Hong Kong Institute of CPAs has long sought to make changes
to the professional liability regime for auditors – such as through
the introduction of limited liability in the form of proportionate
laibility, a statutory cap or other mechanism – although there are no
provisions suggested in the proposed regulatory framework.
However, Kenneth Leung, the accountancy functional
constituency representative in the Legislative Council and a fellow of
the Hong Kong Institute of CPAs, believes the opportunity exists for a
dialogue with the government.
“Liability reform might not be the purpose of the audit regulatory
reform bill itself, but I think there is a good chance for us to engage
with the government and stakeholders to look at the possibility of
introducing limitations on liability or a liability cap,” he says.
The goal of the government in bringing audit legislation in Hong
Kong up to international benchmarks has renewed expectations
that liability may be taken up. “ We recognize that most other
developed jurisdictions have some form of limitation on liability,”
says Chris Joy, the Institute’s executive director.
He notes that the European Union is encouraging member states
to bring in their own arrangements for limiting auditor liability.
“They have it generally encapsulated in a recommendation, but
it leaves the member states free to adopt the particular form of
protection they think is most appropriate for their own home
The growth of Hong Kong’s capital markets has resulted in a
substantial increase in the risks faced by auditors performing audits
for listed companies in Hong Kong, who still operate in an unlimited
liability environment. (In the event of the collapse of large audit firm
as a result of a successful claim for negligence, its partners could
face individual bankruptcy, as their personal assets are also at stake
under an unlimited joint and several liability regime.)
There are several ways to reform liability legislation, such as the
introduction of proportionate liability, which would limit liability
according to the auditor’s share of culpability for any loss suffered.
Another model, adopted in Australia, limits liability by statute to a
multiple of audit fees with an absolute cap.
Joy says the Australian model has been garnering international
attention. “It’s the one people are talking about,” he says. “It’s fairly
robust and well established.”
With the United Kingdom, China, Bermuda and other countries
either instituting or examining liability reform, Leung believes the
time is right for Hong Kong to follow suit. “Auditors need to be
protected by this type of legislation,” says Leung. “It would be a
good opportunity for all these reforms to go in a package.”
The Institute was not successful when it sought limited liability
legislation in 1997 and 2005, but Leung believes that should not be
a discouragement. “If we leave it, it will be another five or 10 years
before the government takes it up again.”
Joy suggests that the Institute favours a system tied to a multiple
of audit fees but without an absolute ceiling. “ We’re reasonably
open-minded about what we eventually get,” he says. “There was
some concern that setting an absolute monetary ceiling on top of a
multiple of fees in individual cases would not be terribly palatable
to other market participants.”
The second meeting on 28 October at-
tracted even more interest with more than
300 members from sectors across the board
attending. Another t wo large meetings are
scheduled for this month.
“I think people were still trying to absorb
and understand what’s going on – but since
then we have developed guiding questions
for them to look at particular aspects and
help people concentrate on key issues,” says
The consultation also includes special
sessions with professional accountants in
business, small- and medium-sized practi-
tioners, holders of practising certificates and
firms that audit listed companies, while Ding
is scheduled to address the topic at the SMP
symposium at the end of this month.
There are three key tasks for members in
terms of providing feedback, as summarized
in the Institute’s paper:
Comment on the framework and confirm
if they support the Council’s views.
Provide additional arguments to support
the Council’s views.
Offer thoughts if there are any aspects
of the views expressed, the reasoning
behind them or the framework itself with
which they do not agree.
The Institute is actively seeking support-
ing comment from members because the gov-
ernment wants the members’ consultation
to gauge the majority view of the profession,
if possible. “Individual members should ex-
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