I first noticed this unfavourable turn of events as early as March 1999 and warned the HKSA Council that a number of newspapers have been developing an editorial line suggesting that the regulation of auditors of listed companies needs to be strengthened. I further warned that the HKSA must quickly rise to the challenge and deal with this very serious issue.

Following this, it became apparent that the Democratic Party and the Stock Exchange were lurking on the attack. As a result, a number of questions were raised before the LegCo resulting in an agenda item entitled 'Regulatory Mechanism for Auditors' being set by the Financial Affairs Panel on 5 July 1999.

This, incidentally, tied in well with the briefing given to legislators on the Composite Securities and Futures Bill, which proposes to give the SFC sweeping powers to access and inspect auditors' working papers, as well as offering auditors statutory protection when reporting fraud.

As accountants, we must reinforce the fact that qualified accounts are not necessarily problem accounts. It is even more absurd to assume that auditors are not doing their job simply because there is a qualification. But does the public understand this? Apparently not, given the confusing media reports.

To understand why not, consider Hong Kong's current economic climate. The recent financial turmoil has taken its toll on the financial health of many listed corporations. In some cases, the value of companies' underlying assets become doubtful, lending to many audit qualifications. Invariably, a few corporations have fallen under the weather as a result - and the general public has instinctively assumed that trained accountants have failed in their capacity as guardians of actions.

Other more powerful regulators have also picked on accountants being partly to blame. Politicians and the Government have seized the opportunity to tighten their grip on the profession and to force accountants to take on greater regulatory responsibilities.

This may seem to be an oversimplified account of the proceedings which has happened in Hong Kong. Following somewhat similar tracks, the UK's Department of Trade and Industry, for example, recently published a consultation document entitled 'A framework of independent regulation for the Accountancy Profession' in November 1998.

The paper sought to explain the different options for regulation and the reasons for which the UK Government had reached the conclusion it had. The proposed framework covers every aspect of the accountancy profession, not just company audits, insolvency work and the investment sector. At the same time the UK's accountancy profession has developed its own proposals for the way forward.

It is based on this already emerging international trend that I made the following widely publicised statements during the Legislative Council's Financial Affairs Panel on 5 July 1999:

• The HKSA should keep an open mind in regard to change and should be proactive in developing its own proposals to fulfil its statutory self-regulation.

• We are the professional watchdogs of company accounts, but not "economic police of the Government"

• The Government and other regulators such as the SFC and the Stock Exchange should first deal with companies and their management to identify the real corporate issues before the HKSA can deal fairly with the auditors.

• The public and the Legislators should be reminded that the HKSA's statutory power is very strictly limited by legislation to deal only with accountants. The modest investigatory powers we have can only be invoked where reasonable cause is clearly established.

• When dealing with auditors, the HKSA must respect the need to protect the confidentially of clients' potentially business sensitive information. However, this does not mean that we cannot strive for great transparency to ensure that the public can see that justice is served.

• The HKSA should accept greater participation from other regulators and laypeople in our profession, but vice versa, we should have a greater say in how other regulators such as the SFC and the Stock Exchange work. Otherwise, we can easily be picked on and assigned an unfair proportion of blame for corporate failure even before management is properly brought to task.

• We should consider a more active role in fraud reporting and even provide some guarded access to our working papers, provided there are proper checks in place, e.g. a judiciary procedure where auditors are entitled to legal representation and where the SFC documents all its discretionary powers in clear practice notes.

• It would appear that the accountancy profession is being 'victimised' if it were to be signed out for additional responsibility. Many other intermediaries can also help in the implementation of corporate governance, e.g. company secretaries, financial advisors, lawyers and senior management.

I fear that the recent spate of publicity is only the beginning of long and tough legislative bargaining as the Composite Securities and Futures Bill is gradually introduced during the second half of this year. I have therefore urged the Administration to exercise great caution in handling this rather reformatory Bill - our critics will no doubt be judging us on how well we are doing our job, ready to make their next move.

It is time for us to keep our vigil and search deep in our hearts to see whether or not we want to 'bite' as well as 'bark' as the watchdogs of company accounts.