AFRC Press Releases
AFRC Issues 2023-24 Annual Report
October 31, 2024 – Summarized by EQC Compliance Advisory
Coming Soon…
Overview of the Non-Public Interest Entity Audit Market
October 30, 2024 – Summarized by EQC Compliance Advisory
The Accounting and Financial Reporting Council (AFRC) published the Overview of the Non-Public Interest Entity (non-PIE) Audit Market in Hong Kong, which provides insights into the structure and workload of non-PIE auditors and emphasizes the need for high-quality audit services.
Key findings from the Inspection Questionnaire (sent to 4,713 practice units (PUs) between September 2023 and January 2024) show that Category E PUs dominate the non-PIE audit market, holding 67% of the market share with 195,274 audit clients in 2022. Category D PUs followed with 17%, while Categories A, B, and C PUs (registered public interest entity auditors) accounted for 16%.
The report highlights that partners/directors in Category D PUs manage significantly more non-PIE audit clients than those in other categories, with a median of 267 clients per partner in 2022, compared to 33 for Category E PUs. In some cases, individual Category D PUs handled extreme workloads, with one PU managing 2,932 clients per partner, which raises concerns about compromised audit quality due to insufficient time and resources.
AFRC CEO Ms. Janey Lai stressed the importance of maintaining high audit quality, urging partners/directors to dedicate sufficient time and resources to each audit, regardless of the size, and to clearly document audit procedures and evidence, even for smaller audits like those of dormant companies. The AFRC will continue to monitor the market to ensure orderly operations and safeguard audit quality.
AFRC Reinforces Commitment to Financial Reporting Integrity in Hong Kong
October 29, 2024 – Summarized by EQC Compliance Advisory
On 29 October 2024, the Accounting and Financial Reporting Council (AFRC) reinforced its commitment to improving financial reporting integrity in Hong Kong. A key concern is the issue of “bogus CPAs”—unqualified individuals or unscrupulous practicing accountants signing audit reports without maintaining proper audit quality. Although no specific cases of fake accountants have been identified, the AFRC has observed growing issues with audit quality, where some accountants take on excessive audit projects and disregard professional standards.
To address these concerns, the AFRC, in collaboration with the Financial Services and Treasury Bureau, the Inland Revenue Department, and the Hong Kong Institute of Certified Public Accountants (HKICPA), is implementing new measures:
1. Amendments to auditing standards to require auditors to display their practicing certificate number on audit reports.
2. A mandate for companies to include the auditor’s practicing certificate number in their profits tax returns.
Ms. Janey Lai, CEO of the AFRC, expressed concern over accountants indiscriminately signing off on audit projects, emphasizing that audit quality and the credibility of financial reporting must not be compromised.
The AFRC encourages the public to stay vigilant by verifying the qualifications of accountants through their online registers and reporting any suspicious activities or misconduct via the AFRC’s complaint system or directly to the police.
Impact of current economic conditions on financial reporting and audit practices
October 21, 2024 – Summarized by EQC Compliance Advisory
The Accounting and Financial Reporting Council (AFRC) released a report on 21 October 2024, addressing the impact of current economic conditions on financial reporting and audit practices for Hong Kong-listed companies. The report outlines:
1. Impact on Financial Reporting:
Economic challenges can lead companies to engage in earnings management, potentially misrepresenting their financial situation, which the AFRC finds unacceptable.
2. Role of Management and Audit Committees:
Company management should factor in economic indicators like GDP, inflation, and interest rates when preparing financial statements. Audit committees must oversee the process to ensure high-quality reporting.
3. Role of Auditors:
Auditors are urged to evaluate how economic conditions affect key accounting estimates, including:
– Expected credit loss
– Asset impairment
– Going concern assessments
Auditors must maintain professional skepticism, plan audits effectively, and involve senior partners early to address heightened audit risks.
The AFRC emphasizes the importance of collaboration between company directors, auditors, and audit committees to ensure the integrity of financial reporting, safeguarding both market integrity and Hong Kong’s position as a global financial hub.