Hong Kong playing catch-up in latest audit reform, say Singapore watchers

Singapore

WITH Hong Kong's recent move to tighten audit governance, Singapore will be looking over its shoulder to see how close its rival comes creeping up.

That is the view of professional services players here, who say proposed reforms in Hong Kong will bring that market closer to the standard that the Republic can already boast of.

Hong Kong authorities announced last Friday that they plan to give the Financial Reporting Council independent oversight of listed entities' auditors - including the power to probe and penalise errant ones.

A bill was introduced for a first reading on Wednesday.

Annabelle Yip, from law firm WongPartnership, told The Business Times: "Singapore is ahead in this aspect. There is already an effective framework in place for regulating auditors in Singapore."

Here, the Accounting and Corporate Regulatory Authority (Acra) - a statutory board - has been the chief watchdog for the accountancy industry.

It rolled out its Practice Monitoring Programme in 2004, to boost audit quality by enhancing surveillance of public accountants' audit gigs - especially for listed companies.

To deter public accountants from repeatedly falling short, Acra publishes on its website the names of public accountants whose licences have been suspended or cancelled for serious audit deficiencies.

It can also publish the names of those who have flunked inspections and been slapped with either "hot review" or restriction orders.

With hot review, a non-compliant individual will need to have some audit engagements reviewed by another public accountant, while restriction orders limit the types of entities that the errant accountant can audit.

As for Hong Kong, Ms Yip - WongPartnership's joint head of corporate governance and compliance practice - said the proposed oversight powers "will bring Hong Kong's regulations in this area more in line with international standards, including Singapore's, and should positively impact Hong Kong's competitiveness in the long run".

But what does a boost to the Hong Kong market mean for the exchange and companies in Singapore?

"My thoughts are that while Hong Kong's stock market has a lot of liquidity, it is also known for the extreme volatility of its prices, and patchy corporate governance," said Stefanie Yuen Thio, joint managing partner at TSMP Law Corporation.

"When drastic share price movements are linked to audit-related gaps, that can have a negative impact on investor confidence, which Hong Kong is clearly trying to address."

She also said that, while Singapore and Hong Kong "have been traditional rivals", the Republic is ahead in corporate governance rankings and has "stolen a march" with its recent embrace of dual-class shares.

Meanwhile, Joshua Ong, head of assurance, capital markets and initial public offerings at accountancy and advisory firm Baker Tilly TFW, said: "In this regard, Hong Kong is playing 'catch-up' with many jurisdictions. However, there are several reasons why Singapore has been perceived to lag behind Hong Kong in attracting companies to list here and retaining them."

Citing how Singapore companies may choose to list in Hong Kong, he said: "While there are benefits to increasing scrutiny and raising the bar of audit quality, it is crucial to avoid 'over-regulation' as this may pose as a further deterrent for companies to list here. A balanced approach is needed."