The Role of Professional Bodies in the Legislative Process
(CGA-Hong Kong Graduation Ceremony and Annual Dinner - 2003.11.17)
I am most honored to be invited to join you on this occasion. This is a memorable occasion for all of you who will be awarded the CGA designation, the Fellow CGA designation, the outstanding achievement award, and the honorary membership award. May I extend to you my sincere congratulation!
I have been looking forward to meet you, but there is a small problem. I have to give a short speech. Over the last 3 decade, I have been living in close quarters with accountants, two of them to be exact ¡V my husband and my son. But I have never seemed able to get them to listen to me! Naturally I was worried how you would response to my short speech!
As I was agonizing over a suitable topic, I remembered the Hon. Eric Li. Eric and I have served in the Legislative Council concurrently for a long time, and we enjoyed very good working relationship. I recalled once I have to rule out an amendment that Eric wishes to move at the Committee stage of a Bill. It is never easy to turn down such requests from my fellow councilors, because they have put so much time and effort into the drafting of the amendment. But Eric was most understanding; he accepted my ruling like a real gentlemen. I concluded that if I talked about the interaction between the accountancy profession and the Legislative Council, there is a better chance of catching your attention and a lesser chance of me sounding ignorant.
The Legislative Council has always attached great importance to the views of professional bodies in our scrutiny of legislative proposals. It has been the standing practice of our Panels and Bills Committees to seek views from professional bodies, such as Bar Association, Law Society, and the Hong Kong Society of Accountants. In this respect, the views of professional accountants are particularly important to us when considering proposals relating to the financial infrastructure of Hong Kong and the operation of companies.
In order that views and suggestions of interested parties can be taken into account at an early stage of law drafting, there is an agreement between the Administration and the Legislature that all legislative proposals should first go to the relevant Panels for initial response. We have a total of 18 Panels to cover different policy area. The Panel may invite interested parties to express views on the proposal especially when the proposal is likely to cause concerns. It is not uncommon for the Administration and the parties concerned to meet after a Panel discussion with a view to sort out their differences and come up with a revised proposal. The role of the Panel here is similar to a catalyst, enhancing communication between the Administration and the relevant profession or concerned parties. Sometimes, the Administration does not require prompting; they would take the initiative themselves.
Involvement at an early stage
An example of professional accountants¡¦ involvement at an early stage of the formation of a Bill is found in the Companies (Amendment) Bill 2003. One of the proposals relates to the definition of ¡§subsidiary¡¨ for the purpose of group accounts. After consultation with the Hong Kong Society of Accountants, the Administration proposes to amend the statutory definition of ¡§subsidiary¡¨ to make it more align with that adopted by the International Accounting Standards (IASs).
Taking Legislative Initiative
Occasionally, the professional body takes a more active role and steer the legislative process. You will no doubt recall the outbreak of the corporate scandals in the US and suspected cases involving false financial report of listed companies in Hong Kong in late 2002. The Government and the Hong Kong Society of Accountants met and discussed ways to improve the existing regulatory regime of the accountancy profession as set out in the Professional Accountants Ordinance. HKSA put forward a series of proposals, including the increase in the number of lay members sitting on the Society's Council, altering the composition of the Disciplinary Committee with the majority being lay members, and expanding the membership of Investigatory Committee with the majority being lay members. The proposals will be incorporated into a Members' Bill sponsored by Hon Eric LI.
For the last proposal relating to Invsetigatory Committee, there is an alternative proposal, and that is: establish an Independent Investigation Board to deal with alleged accounting, auditing and/or ethics irregularities related to listed companies. The Government has just completed a public consultation exercise on the Independent Investigation Board as well as the establishment of the Financial Reporting Review Panel to oversee the application of accounting requirements of the Companies Ordinance. It is expected that the Administration will come back to the Panel on Financial Affairs with its proposal in the first quarter of 2004.
The above also illustrates the process in handling major or controversial legislative proposals. The Government normally conducts public consultation for major proposals. It is common practice that the Administration reports to the Panel on the findings of the consultation exercise and on the way forward. Where the way forward may give rise to public concern, the Panel normally conducts public hearings or invites views from interested parties and professional bodies.
Government Consultation on important legislative proposals
Another major consultation currently underway is on Proposals to Enhance the Regulation of Listing. One of the more controversial issues is whether certain fundamental requirements in the non-statutory Listing Rules of the Stock Exchange of Hong Kong Ltd. should be given statutory backing. A unique feature of Hong Kong¡¦s market is that an unusually large proportion of listed companies, about 80%, are incorporated off-shore, and they are regulated by the Stock Exchange¡¦s Listing Rules, rather than the Companies Ordinance. The Consultation Paper invites views on whether statutory backing should be extended to disclosure requirements in prospectuses and other listing documents, periodic reports by listed issuers, financial statements, etc. Your views, particularly if you are involved in a listed company, I am certain, will be most welcomed by the Administration.
Bills Committee and Committee Stage Amendments
It is never too late to express views on a bill even after its formal presentation to the Council. All bills are adjourned for referral to the House Committee at Second Reading stage. Having regard to the complexity and implications of the bill, the House Committee may decide to form a Bills Committee to study the bill. The Bills Committee normally invites views from professional concerned and related industries to ensure that they are aware of the content of the bill and its implications. Information on the details of the bill and prior discussions on the subject is available on the Legislative Council website ¡V www.legco.gov.hk. You are most welcome to surf it.
The legislative process of the Companies (Amendment) Bill 2002 passed in July this year is an illustration of how the profession can affect the contents of a Bill through representation to the Bills Committee and the efforts of its representative in Legco. The Hong Kong Society of Accountants expressed strong views that in the absence of any requirement for a company to file particulars of its shadow director, it would be difficult, if not impossible, for auditors to include in their report loans to shadow director whom they have no knowledge of. Consequently, the Administration moved an amendment during Committee Stage, to the effect that the responsibility of declaring relevant transactions will be borne by the shadow director concern.
Your Participation will help to make good and workable Laws
Law making is a continuous process. You may notice that some long standing issues or new problems could not be resolved entirely by a single piece of legislation. It is important that views on legislation or administrative arrangements are fully reflected in the deliberations of the relevant committees or in the Council. Outstanding issues from the legislating process, including Government¡¦s undertakings and commitments made at the Second Reading Debate, are followed up by the relevant Panels or when new legislative proposals in relation to the same subject area are brought up again in the Legislature.
Your legislature, my fellow Councillors and I, needs your participation to make laws that are in line with the needs of the community, that enhances Hong Kong¡¦s position as a business center, that are workable and enforceable. You can participate at any stage, before the Bill was drafted, while the Bill was being drafted, after the Bill has been introduced into the Legislative Council, and even after it has been passed and found wanting. I am sure the Hon. Eric Li agrees with me in the last message I wish to convey to you, and that is, ¡§We love to hear from you¡¨. Thank you.
Note: Credit is due to the Hon Rita Fan for sharing this speech with me.