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After an illustrious
13-year career as the Accountancy profession’s
representative in LegCo, Eric Li capped his achievement by
driving through a Bill that changes accountancy in Hong
Kong for ever
When the Professional Accountants
(Amendment) Ordinance & By-laws 2004 was passed by the
Legislative Council on 9 July 2004, it was a watershed
event for the accounting profession.
In the broadest terms, the ordinance
increases lay oversight of the self-regulated profession,
expands the scope of powers and sanctions available to the
Hong Kong Institute of Certified Public Accountants (HKICPA)
and sets out an immunity provision for accountants who
perform their statutory functions in good faith under the
law.
The most visible impact of the
ordinance became evident on 8 September 2004, the date the
ordinance took effect. As provided for in the legislation,
the Hong Kong Society of Accountants (HKSA) formally
changed its name to the HKICPA. The designation of
HKICPA’s members also changed from that of ‘Professional
Accountant’ to ‘Certified Public Accountant’.
It should be noted that only Practice
Units are permitted to use the description ‘Certified
Public Accountant’ or the designation ‘CPA’ to carry on a
business, trade or practice. Anyone else using the terms
would be committing an offence.
Practice Units must include a certified
public accountant (practising) practising on his or her
own account, a firm of certified public accountants (practising)
or a corporate practice. In addition, only Practice Units
may use the Institute’s logo on stationery and only CPAs
working for Practice Units will be allowed to use the logo
on their business name cards.
At the epicentre of the drive to win
passage of the omnibus Bill was Legislative Councillor for
the Accountancy constituency Eric Li, who introduced the
Bill on behalf of the Society and shepherded it through
the Legislative Council (LegCo).
It was a bittersweet occasion for Mr
Li, who is retiring from LegCo after 13 years.
Self-effacingly, he described the Bill’s successful
passage as a ‘parting gift’ from LegCo.
Mr Li’s colleagues in LegCo rallied
round him and even though the omnibus 88-page Bill was one
of the last to be acted upon before the 2003-04
legislative session adjourned, it sailed through with
relative ease.
‘This is a very important piece of
legislation. It is historic for the profession,’ Mr Li
reflects. ‘I set out to leave politics without regret and
all the tasks that were entrusted to me I wanted to finish
professionally and thoroughly before I went. So for me to
achieve this task and leave politics is very satisfying
and instructive.’
After it was formally gazetted on March
19, 2004, the Bill made its way through the legislative
process in fits and starts. Delay after delay complicated
the schedule. Then the Chinese translation of the bill
took much longer than expected. Mr Li likened the
experience to a traditional ballroom dance. ‘I called it a
foxtrot,’ he says. ‘We took three steps forward, two steps
back and then sideways before we went forward again.’
The Bill started off in the Financial
Affairs Panel in hopes that this might allow it to bypass
the queuing system of the Bills Committee. But halfway
through their deliberations, legislators realised the Bill
was too complex for this expediting manoeuvre and called
for a Bills Committee to be formed.
‘We were put at the bottom of the
queue,’ Mr Li recalls. Since it was already late in the
session, he feared that the Bill might lapse if it was not
acted upon in time. ‘When the legislators saw what had
happened, what they did was very unusual and exceptional,’
he says. ‘Across all political parties, they offered their
support to the bill be taken out of the normal queuing
system and given a higher priority.’
After Mr Li personally lobbied Chief
Executive Tung Chee-hwa, Chief Secretary Donald Tsang and
Financial Secretary Henry Tang, the problem was resolved.
‘With a lot of good will on their part, the Financial
Secretary agreed to pull out one of the less important
bills to give us priority,’ he says.
The Bill had its genesis in a
consultation paper issued in September 2003 by the
Financial Services & Treasury Bureau (FSTB). The FSTB
report was based largely on HKSA’s own reform proposals of
January 2003, which came in the wake of demands globally
for greater oversight of the profession after Enron and
other corporate financial scandals.
The HKSA reforms included:
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increasing the number of lay members and Government
appointed officials on the HKICPA Council, from two to
six. The four new lay members would be appointed by the
Government and the Council would be expanded from 16
members to 23;
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increasing the size of the Investigation Committee from
three to five, with a majority of members, including the
chairman, being lay persons;
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changing the composition of the five-member Disciplinary
Committee so that a majority of members, including the
chairman, are lay persons.
Recollecting the reaction of
legislators to various provisions of the Bill, Mr Li
speculated that the immunity provision would be the one
that might generate the most heated debate. That didn’t
happen though. Prior to the Bill, immunity protection for
accountants was reserved for persons involved in practice
reviews. The Bill’s wider coverage applies to persons
involved in statutory investigation and disciplinary
proceedings, as well as members of the Council, its
officers and persons to whom any powers or duties of the
Council have been delegated while exercising their
statutory powers in good faith.
‘I was worried about [the immunity
provision] but it went through quite quickly,’ he says.
Some legislators expressed concerns
about the public nature of the Disciplinary Committee’s
hearings, noting that a person who was the subject of the
hearings might be subject to premature publicity, which
could tarnish the reputation of an innocent CPA.
But Mr Li reiterated the HKICPA’s
desire for transparency, which was in keeping with the
organisation’s oversight proposals. Responding to the
Bills Committee, he cited the risk of premature publicity
adversely affecting innocent members as being ‘no greater
than the risk inherent in the publicity surrounding open
court hearings’ and that accountants ‘should not be
treated any differently from other members of the general
public’. The legislators acceded and the provision for
public hearings remained intact in the Bill.
The Bill also gives added powers to the
HKICPA to police its ranks. It grants the Council the
power to cancel the practising certificate of a practising
accountant who is subject to a bankruptcy order or has
entered into a voluntary arrangement with creditors.
In future, holders of practising
certificates will be required to make a declaration in
their annual application for a renewal of their practising
certificate that they are neither subject to a bankruptcy
order nor have entered into a voluntary arrangement. They
must also inform the HKICPA if such a situation arises.
Another provision originally empowered
the HKICPA to require an accountant to provide an
explanation for any act or omission relating to his or her
conduct as a certified public accountant. Formerly, the
Institute could not compel an accountant under
investigation to provide information.
The Bills Committee objected to the
latitude of the proposal, saying it was too broad. So it
was narrowed down to ‘conduct which appears to the Council
to be unbecoming of a CPA, or conduct which may affect the
reputation, integrity and status of the [HKICPA],’ or that
falls within the disciplinary provisions of section 34 of
the PAO. Failure to comply with a direction from the
HKICPA is now punishable by a fine of $50,000.
The new ordinance also specifies that
compliance with continuous professional development is a
condition for renewal of an accountant’s membership and
practising certificate. The Council may refuse a member’s
application to renew his or her membership or practising
certificate if the application is not accompanied by a
declaration of compliance with the relevant CPD
requirements.
The success of this Bill does not mean
that the drive for reform is finished. As part of its
oversight measures, the Institute expects another Bill to
be introduced in the next legislative session that would
create an Independent Investigation Board (IIB). A
centerpiece of the HKICPA’s January, 2003 reform
proposals, the IIB would deal with alleged accounting,
auditing and/or ethics irregularities committed by
professional accountants that relate to the audit of
companies listed on the Stock Exchange of Hong Kong.
The IIB is expected to generate far
more controversy, not the least because of its estimated
$10 million funding cost. But the difficulties that lie
ahead do little to diminish the accomplishments associated
with the passage of the Professional Accountants
(Amendments) Ordinance.
Now that the ordinance is part of Hong
Kong law, Mr Li took the opportunity to commend the
legislature and the HKICPA for the ‘united stand’ they
took in cooperating together to help to pass the Bill.
‘The content of the Bill speaks for itself. It was very
clearly on public interest grounds, not to serve the
interests of accountants,’ he says. ‘Everyone was in a
really constructive mode and working toward achieving
something tangible.’
While the new law may go largely
unnoticed by the public, he characterises it as extremely
important for accountants. ‘It certainly enhances the
credibility of our self-regulation system. It will dispel
once and for all any unjust perceptions that accountants
always protect accountants,’ he says. ‘In the long term,
it will create more jobs for the profession and help to
enhance our competitive edge in the region.’
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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