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Talk of the Town

Usually media shy accountants have uncharacteristically become the talk of the town in the last few months. First, the Enron affair plunged the reputation of the accountancy profession to a low point. Then the World Congress of Accountants in Hong Kong brought us back on a roller coaster upward track. But before we have time to bask in that glory for too long, the ICAC made the shocking arrests of several top executives of three listed companies and cast the net wide enough to include two accountants too. The censorious media immediately cried foul, putting accountant leaders back on damage control mode. But no matter which way our fortune turns, it must have registered in the minds of the public that accountants are an increasing important group of people in Hong Kong.

The curtain of the World Congress was drawn against the backdrop of the aftermath of Enron; a general lost of confidence in accountants; the looming threats of the Sarbane-Oxley Act and a groundswell of global opinion calling for tighter controls on the accountants¡¦ profession. However, being stunned by the dramatic appearances of premier Zhu and much impressed by the silky smooth operation of the Congress programmes, the public seemed content to temporarily forget the accounting issues at hand. Instead they turned their attentions to what the premier has to say about Mr Tung, the budget deficit and his promises to support the economy of Hong Kong. However, premier Zhu¡¦s simple but powerful remarks on 'no false accounts' unwitting left a very vivid impression.

Press takes up the call

There is no wonder why the newspaper headlines were dotted with sensational captions like the 'Hong Kong version of Enron' and 'No False Accounts for Hong Kong' in the few days after the ICAC arrests. However, with the benefit of valuable experiences shared in the World Congress, the HKSA and your LegCo representative were well prepared to come up with swift responses.

In ignorance

As your political representative, I was bombarded with embarrassing questions from the press on the very day it happened. It is not easy to properly communicate our defence when reporters can hardly distinguish the difference between the functions of the HKSA Council, our Investigation Committee and the Disciplinary committee. Some of them even think that we are like the military with our own marshall laws and accountants¡¦ courts to try accountants who had committed serious crimes. They wonder why our legal sanctions are so light. Some simply joined the well-rehearsed game of calling for greater regulations and stiffer penalties whenever they see any sign of trouble. Few will give you a chance and listen objectively to the proper arguments.

In order to buy some time for the HKSA Council to formulate a proper response, I consistently explained in the first few days after the arrests, in numerous forums and interviews, that we should clearly distinguish between criminal prosecution and disciplinary proceedings of unprofessional conducts. The reported cases have revealed neither details of non-compliance of auditing or accounting standards nor our ethnical guidelines. It appeared to be a classical case of suspected corruption and false accounting which are both serious criminal offences. They are by nature outside the scope of our self-regulatory frame work. The ICAC will investigate the matter and the Courts will hand down the sentence for any wrong doings. If the accountants are found guilty of criminal offences, then the Professional Accountants Ordinance is clear on this point, they should be suspended from membership. There is absolutely no room for accountants protecting accountants by means of some secretive internal procedure.

However, we must admit that the series of scandalous events revealing that irregularities and false accounting are at play have already tainted the public¡¦s confidence in the profession. A very conscious effort will need to be made quickly to restore that confidence. As a matter of fact, ¡¥self-regulation¡¦ of accountants is well defined and narrow in scope. Quite a few pieces of legislation like the Serious Organised Crime Ordinance; the Prevention of Bribery Ordinance; the Securities and Futures Ordinance and the Companies Ordinance all provide means and powers for the Government to appoint inspectors to investigate the conducts of accountants and the records kept by us. In the recently reported case, the ICAC has all the powers it needs to investigate and to prosecute, if necessary, the accountants in question. The Government does not have to depend on the HKSA to regulate its own house in this instance. The present system has served the community well and should not be discarded before a better system is found.

Crimes and dishonest acts cannot be totally prevented even with the best and most elaborate regulations.

Liberal view

Personally, I hold a very liberal view on how our self-regulation can operate. I wrote on the same subject some two years ago in this column; it was entitled ¡¥Barking, Biting Watchdogs¡¦. I fully subscribe to the conclusions of a recent study which recommended increasing the number of lay members in many of the HKSA Committees including the Disciplinary Committee and to open its proceedings to the public. Given that the [Disciplinary] Committee is already open to public scrutiny, I envisage no problem in further increasing the number of lay members from two to three out of a total of five and thereby concede the majority on the Committee.

With regard to the investigation Committee, I also keep a very open view as to the involvement of lay members in the supervision and monitoring of its works. However, I do not think that adding lay members to the Committee can actually solves the underlying problems of delays in processing its works.

Complex cases brought to the attention of the appropriate committees of the HKSA are time-consuming and require vast physical and intellectual resources. The lack of statutory powers and financial resources available to a non-state organisation such as ours is very real.

For example, that we cannot compel information from involved parties who are non-members can be a serious limitation to the efficacy of any investigation. Worse still, our frequent complainants like the Stock Exchange and the Securities and Future Commission, who have their own wider powers to obtain information, may not always find it appropriate to pass such information to us. In a more complex commercial transaction, it might not always be easy for us to obtain the same information, which makes it difficult for us to fully appreciate the complaints made, quickly and efficiently. Unfortunately in our case, following due process under these restrictions takes a long time.

I have urged the leaders of the HKSA to seriously consider a more comprehensive and effective way to tackle these difficulties once and for all. In my view, an independent Board of Investigation under the auspicious of the Financial Services Bureau with adequate resources and wider powers to obtain evidences is clearly a preferred long-term option in the investigation of accountants¡¦ conduct in listed Companies.

Dr Eric Li is the LegCo Accountancy Functional Constituency Representative. For more information, refer to his website at http://www.ericli.org 

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