Issue 26 September 2002
This year’s session of the Legislative Council (LegCo) has come to an end. Overall, there were a few things special about it, and I now try to conclude them in a few phrases. Strong at both ends but weak in the middle – the Policy Address took care of only big corporations and the grass roots but neglected the middle class. Slow in the beginning but rushed in the end – bills were discussed at a snail’s pace at first but then were rushed through in the wrap-up stage; for example, the accountability system for principal officials. Relaxed in appearance but strained in fact – the administrative arm and the legislature were seemingly friendly with each other but their relations were actually strained.
Since the LegCo resumed in October, there were no big events because the Policy Address will be postponed to early January next year, to be closely followed by the Budget Speech in March. It seems that things are getting tighter and tighter (in terms of both the schedule and the budget). To tide Hong Kong’s economy over, we need collective wisdom to come up with some feasible measures to improve the short-term, medium-term and long-term prospects so that we can rebuild the confidence of the public.
COMMITMENT AT THE LEGISLATIVE COUNCIL
COMMITMENT AT THE LEGISLATIVE COUNCIL (2001-2002): A SUMMARY
10 articles published in The Hong Kong Accountant
1 consultation with accountants on the important issue “Public
Officers Pay Adjustment”
＊ Eric Li defended the interests of the finance sector
It is not that we cannot enact an anti-terrorism bill. What is troubling is that the SAR Government often sacrifices people’s legal rights for administrative and legal expediency and go for short-term benefits at the expense of the rule of law and human rights in Hong Kong.
In the anti-terrorism bill, one of the focuses is the attempt to combat the activities of “terrorists” at all fronts. In handling transactions or savings of their clients, members of the accounting, securities, banking, and real estates sectors have to guard the SAR at the forefront by judging whether their clients’ money is related to terrorist activities. Serious consequences would result if accountants are charged with “failing to report the case” by law-enforcement officials. This was strongly opposed by legislators such as Hon. Eric Li of the accounting sector.
“How can a person who handles innumerable money transactions every day or every month judge by himself whether each transaction is related to terrorist activities or have reasonable suspicion over possible cases?” asked Li. “It is easy to be wise in retrospect. The law-enforcers who have obtained information about some terrorist activities can find one or two professionals to spend time scrutinizing a thousand transactions of a certain day last month. In this way, a couple of cases which give rise to ‘reasonable suspicion’ can certainly be identified. But how can a professional without any information have a nose for terrorist transactions?” Under the threat of punishment in the case of identification failure, how can members of the finance sector free themselves from the terrible fear posed by the anti-terrorism bill?
All parties in the LegCo united in opposition against Provision No. 11 of the anti-terrorism bill, which states that “Where a person knows or has reasonable grounds to suspect that any property is terrorist property, then the person shall disclose to an authorized officer the information…” and that if the person fails to comply, the person commits an offence. The Government agreed to make three concessions but Li considered these concessions nothing new and persisted with his opposition. This is the first time we are aware that legislators are protecting the interests of Hong Kong people! (Hong Kong Economic Times, 21 June 2002)
At the meetings of the Bills Committee on United Nations (Anti-Terrorism Measures) Bill on 13 and 14 June, Hon. Eric Li repeatedly challenged the provision on “disclosure of knowledge or suspicion that property was terrorist property”. (Minutes by the Council Business Division 2 of the LegCo Secretariat, 9 August 2002)
ADVICE FOR ACTION
＊ Eric Li expected the outsourcing of personal bankruptcy management
to bring in a hundred million dollars for the accounting sectorI
In a special interview by our reporters, Hon. Eric Li, who represents the accounting sector in the LegCo, remarked that in view of the upsurge in personal bankruptcy petitions, the Official Receiver’s Office was examining the possibility of also outsourcing personal bankruptcies. This was expected to be in place within a year. This arrangement would bring in over a hundred million dollars for the accounting sector and help the Government handle bankruptcies more quickly.
According to Li, after the financial turmoil in 1998, the number of bankruptcy in Hong Kong had been increasing, but doubts had been raised about the speed at which the Official Receiver’s Office handled the cases. Many creditors did not get a definite answer or any compensation even after years of waiting. Li added that the bankruptcy number had increased ten times since 1998, which had grown “out of the capacity” of the Office. In order to deal with personal bankruptcies, which had increased most rapidly, the Office, according to Li, had begun an open consultation on the need to outsource personal bankruptcies to private accounting firms. The results of the consultation was expected to come out within a year.
Li pointed out that because of lack of manpower to deal with the “never-ending” bankruptcy petitions, it would be very costly and unreasonable for the Government to handle all the cases by itself. Moreover, the Official Receiver’s Office was not able at all to handle the piles of cases accumulated, nor would the LegCo possibly approve a “huge” amount of funds for the Office. That was why he strongly advised the government to outsource the cases so that government funds could be saved and the accounting sector would have a source of business, which would be a win-win situation.
In the past two years, the Government spent about ten million dollars a year to outsource company bankruptcy management through open tendering. But Li emphasized that the accounting firms did not charge much and that their profits were not big. The myth had been that every case could bring in sixty thousand dollars, but actually competition was so keen that there were offers to take on cases for only a few thousand dollars. In fact, charges averaged only around twenty thousand dollars.
“Although the charges for bankruptcy management are not high, the outsourced
cases constitute a new source of income. If all bankruptcies are outsourced,
the related business will bring in over a hundred million dollars and
this will certainly be a strong support for the accounting sector, which
is now fighting for survival,” said Li. He smiled and said that accounting
firms do not want to see more bankruptcies but a broader client base and
more value-added services will more or less be “of some help” to the firms.
(Wen Wei Po, 15 August 2002)
In his supplementary question at the LegCo meeting on 24 April
2002, Hon. Eric Li asked whether the Secretary for Financial Services
knew that there is a certain new technology which may help to extend the
life span of banknotes, making it better value for money. In Australia,
for example, the banknotes are made of plastic, thus they will not wrinkle
and will not be damaged easily.
In 2001, the IPCC raised 868 queries on the CAPO’s investigation reports,
asking for clarifications on ambiguous points or questioning the results
of investigations. Subsequently, the results of investigation of 93 allegations
were changed. Arising from the investigation results endorsed by the IPCC
in 2001, criminal proceedings, disciplinary and other forms of internal
actions were taken against 293 police officers. The IPCC also suggested
improvements to police procedures where appropriate. (Speech of Hon. Eric
Li, Vice-Chairperson of the Independent Police Complaints Council, on
the Report of the Independent Police Complaints Council 2001 at the LegCo
meeting on 26 June 2002)
For cases handled by the Secretariat on Civil Service Discipline (the Secretariat) which was set up in April 2000 to centralize processing of disciplinary cases under the PS(A)O, the processing time has progressively improved following the implementation of streamlined procedures. In the past, cases requiring a hearing took on average seven to 18 months to complete. Since the inception of the Secretariat, the processing time requiring a hearing has been shortened by more than 30% or three months in some instances, and many cases could be completed within five to 15 months. The Secretariat has completed 112 cases in 2001-02, of which over 80% were completed within a year.
He pointed out that: Action on 231 cases which involve interdiction was
concluded within the previous year. The average time taken to complete
the related disciplinary proceedings was about 9.5 months. The case with
the longest duration took about 20 months. That was due primarily to the
complexity of the case. Up to the end of March 2001, of the 101 interdicted
officers 70% have eventually been removed from the service. During the
period from 1 January 2000 to 31 March 2002, 193 civil servants have been
dismissed or compulsorily retired after disciplinary proceedings. So far
there has not been any case where the officer is reinstated upon judicial
review. (Wen Wei Po, 30 May 2002)
＊ Eric Li advocates flexible accounting to enhance corporate
governance and improve professional conduct
According to Li, the messy accounts of US corporations had directed the global media to the conclusion that the accounting system was flawed. In fact, the accounting system should be used as an objective, neutral language of commerce to depict the financial conditions of companies. This technical language of commerce, however, is lagging far behind the rapid and diversified development of the commercial world. Therefore, a flexible accounting system together with sound professional judgement should be able to accommodate the actual conditions of different companies in different fields. This is the positive side of the matter. From a negative perspective, a flexible system can easily be abused by dishonest businessmen. This, Li believed, should not cause us to negate the value of accounting system. What we should do is to enhance corporate governance and find measures to address issues of professional conduct. Only in this way can we get to the root of the problem and minimize the possibility of an Enron case in Hong Kong.
System should have the flexibility to adapt
Li repeatedly emphasized that in today’s society where new ways of doing business keep emerging, a rigid system may only make it easier for those who so intend to evade the regulation of the system and exploit loopholes. What the regulatory body needs to do, he suggested, is to devise measures to address the professional conduct of managerial staff. This boils down to the regulation on personnel.
“The corporate accounts scandals in the US had nothing to do with the accounting system as such. They were cases of fraudulent and criminal acts. Why couldn’t the problems be prevented even when there were so many auditors and corporate governance mechanisms in place? How much money on earth does a company have to spend to hire people to prevent embezzlement by those in charge?” Li posed a series of questions for reflection.
Abide by international accounting standards
Li added that those who regulate naturally hope the accounting system could be as mechanical as possible and that the international standards be, as unified as possible, leaving little room and flexibility for individual judgement. “Across-the-board right-or-wrong judgement is simple and easy for the regulator.” But the problem is that dealing with the ever-changing market conditions, a rigid system will always lag behind the realities. Meeting the wish of the regulator may, to a certain extent, result in regression rather than progression in the accounting system, which may not be desirable for Hong Kong in the long run.
Corporate governance is worth studying
It can be said that independent non-executive directors bear a heavier
responsibility than ordinary directors in being accountable to the shareholders
because they have additional responsibilities such as giving suggestions
to the shareholders, but they cannot participate in company decision-making
and get less in reward. To put it bluntly, to be an independent director
is to be “exploited”. Then why are people willing to take up such a post?
According to Li, it may be because of their relationship with the company
boss or for the social status perceived to be associated with the post.
Independent directors vary in quality and there are some who are there
just to make up the number. “To improve the culture of corporate governance,
it is essential that independent non-executive directors possess adequate
professional knowledge and be rewarded equitably, and that their liability
be distinctively differentiated from that of executive directors.” (Ta
Kung Pao, 22 July 2002)
The proposed service centre will be operated by a few accounting firms which will share the rental costs and the emolument expenses on clerks and secretaries. The partner firms will take turns sending accountants to be stationed at the centre to take on assignment. Li believed that although this operation mode is somewhat like a brief case operation, it can help those accounting firms which cannot afford to establish a mainland branch themselves to explore the mainland market at lower costs. (Wen Wei Po, 21 August 2002)
＊ Eric Li: capitalizing on the adversity and seize the opportunities
In the future, high technologies, logistics, and finance will be the three locomotives for the economic development in Hong Kong. They are all capital-intensive with a low demand for manpower, but they certainly need accounting professionals to assist in business development. This is where the development opportunities of the accounting profession lie.
Moreover, following China’s accession to the WTO, the mainland economy is developing rapidly, hence there is a great demand for accountants. Li urged Hong Kong’s accounting professionals to look to the mainland market and explore opportunities there for a better development. Hong Kong’s accounting profession has all along followed international practices. This is our edge. However, as the accounting professionals on the mainland gradually upgrade their standards, our edge will gradually disappear and the gap between the two regions regarding accounting standards will be narrowing. Our accounting professionals, therefore, must equip themselves to rise to the challenge and competition from their mainland counterparts. (Ming Pao, 22 July 2002)
＊ Newcomers should look to the mainland and equip themselves
for a better development
Li also remarked that although the Enron case in the US had led to a
crisis of confidence in the accounting profession amongst the public –
“a shame” – the whole issue could, in the long run, help the profession
develop in a healthier direction. According to Li, the influence of negative
news had only caused an increase in work load. It was because with their
professional knowledge, accountants are essential in the processes of
strengthening the accounting system, improving the financial mechanisms
and reinforcing regulatory practices. The conclusion he drew in the seminar
was, therefore, “The prospects of the accounting sector are good!” (Ta
Kung Pao, 15 July 2002)
Li suggested that in the next consultation the Hong Kong Exchanges and
Clearing Limited list out a number of options for the de-listing mechanism
and explain the philosophy and pros and cons of each option. The demarcation
line for de-listing should not be drawn until the completion of consultation.
It can then decide on the implementation date with the securities sector.
(Ming Pao, 3 August 2002)