Hong Kong’s Accounting and Financial Reporting Council (AFRC) has issued the 2022 Annual Inspection Report on its inspections of public interest entity (PIE) auditors and non-PIE auditors completed from 1 April 2022 to 31 March 2023.  

Overall audit quality rating – improved but not enough  

In 2022, the AFRC inspected 55 PIE engagements, representing a nearly 50% increase when compared to 2020, in response to the unsatisfactory inspection results from previous years. For the first time, six non-PIE engagements were inspected under the power given to the AFRC in the Further Reform.   

Introducing the 2022 Annual Inspection Report, AFRC head of inspection, Janey Lai, said: “The average audit quality rating for all PIE engagements inspected improved to 2.8 in 2022 from 3.1 in 2020, but it was not enough. We saw a progressive improvement in audit quality, mainly in Category A (Cat A) firms. However, the inspection results of most of the Category B and C (Cat B and C) firms were disappointing. In other words, there is still huge room for improvement.   

“The recurrence of deficiencies indicated that some firms have not learnt or have not learnt enough from our previous inspection findings. This is a loud and clear message that those firms without substantial improvement in audit quality rating during the 2020- 22 Cycle, should immediately sharpen their focus on improving audit quality and protecting public interest. Their attitude in compromising audit quality either by impaired objectivity or by cutting corners is unacceptable. This could have a severe impact to the public’s confidence in the quality of financial reporting of Hong Kong as an International Financial Centre.”  

System of quality control – good practices in some Cat A firms, but unsatisfactory results in most Cat B and C firms  

In respect of the Systems of Quality Control (SQC), the AFRC noticed good practices adopted by some Cat A firms during the inspection. They encourage other firms to learn these good practices in the system quality of management development. There were a total of 14 Cat B and C firms inspected in 2022, with deficiencies identified in different elements of the SQC. In particular, the number of firms found to have deficiencies in acceptance and continuance of client relationships jumped significantly from 33% in 2020 to 71% in 2022, which required immediate attention.  

Lai added: “It is unacceptable to find such high rates of deficiencies in the Cat B and C firms in our third year of the 2020-22 Cycle. These firms did not take benefits from our previous publications to enhance their SQC. To protect the public interest, the firmwide quality controls over client and engagement acceptance procedures will be under our focus. We will keep monitoring the current situation and taking further steps, particularly on firms with a tendency to accept higher-risk and more complex engagements which are disproportionate to their experiences and resources.  

“We urge auditors to take robust actions and firms’ leadership such as firms’ Chairmen, Managing Partners and engagement quality reviewers (EQR) to set the right tone in order to improve the effectiveness of the quality management system and the quality of their audit work. At the same time, we also urge directors of the listed entities and their audit committees to take advantage of our comments on audit firms when assessing the competence and capabilities of their auditors. It is their primary responsibility to ensure the quality of financial reporting and audits and therefore they should maintain regular communications with the auditors on the key audit risks and resolve any issues identified during the audit.”

The ACCA Report on Regulation 2023 describes and reflects on the organisation’s regulatory activities in 2022 and its plans for 2023. The report explains how the independent Regulatory Board, which provides general oversight of ACCA’s regulatory arrangements, works with ACCA. 

The Regulatory Board provides robust and independent oversight of ACCA’s regulatory arrangements and – supported by the Appointments, Qualifications and Standards Boards – plays a critical role in safeguarding the public interest and delivering public value. The majority of the Board’s members are non-accountants 

Regulatory Board chair, Lucy Winskell, said: “In these uncertain and challenging times, it is vital that the Board plays its part in ensuring ACCA’s regulatory arrangements are robust, transparent and proportionate, and in the public interest. The Board keeps abreast of key developments both in the UK and the wider global environment and the impact on the ever-evolving regulatory landscape.” 

ACCA’s regulatory structures and activities are kept under review, in order to respond effectively to developments in society and the regulatory environment. ACCA’s qualifications, ethical standards, licensing, continuing professional development, monitoring and disciplinary processes are key to reassuring the public and regulators that high standards are being promoted and enforced. 

ACCA executive director of strategy and governance, Maggie McGhee, concluded: “We work proactively with our lead regulators to support improvements, implementing recommendations and engaging with regulatory development to help shape regulatory policy in the public interest.”

Deloitte has been named in The Times Top 50 Employers for Gender Equality list for the eighth year running. The list, which is published in partnership with Business in the Community (BITC), recognised Deloitte as one of the top 50 organisations that continues to prioritise gender equality.  

Deloitte in the UK has recently launched new policies to support gender equality and inclusion, including enhancements to its parental leave policies, bereavement and baby loss leave, and a new menopause policy. It also introduced cover for assisted fertility treatment and gender dysphoria as part of the firm’s private medical insurance. 

This year’s Deloitte UK partner promotions saw 40 (39.6%) women being promoted to partner increasing the total number of Deloitte’s women partners to 386 (29%). 

Deloitte managing partner for people and purpose, Jackie Henry, said: “Our place in The Times Top 50 Employers for Gender Equality list demonstrates our focus on creating an inclusive workplace, where everyone can thrive at work. I am particularly proud of the range of enhancements to our existing family policies, making sure that we are taking care of our people at all the important life stages. 

“We are already seeing the impact of our Future Leaders Programme, which supports women and ethnic minority colleagues in their progression and development journey at the firm and ensures there are more people ready for senior roles. To ensure greater accountability, we are also including diversity metrics in senior leaders’ scorecards this year. 

“We have seen further progress in the representation of women amongst our most senior leaders. It’s important that we continue to build a diverse firm, with an inclusive culture, and authentic, visible leaders at every level.” 

Business in the Community gender equality director, Charlotte Woodworth, added: “Whilst organisations such as Deloitte are doing a brilliant job at reducing gender inequalities in the workplace, it is evident that across all organisations there is far more work to be done. There are still too many employees who face barriers in the workplace, from a lack of sponsorship to caring responsibilities. The cost-of-living crisis, following the pandemic, has made these challenges even more noticeable. 

“It is encouraging to see that this year, we have seen the highest number of applications to the Times Top 50 compared to any year so far. Deloitte being recognised as a Times Top 50 employer for gender equality shows that it is committed to addressing these issues so that inequalities in the workplace can be a thing of the past.” 

Business in the Community chief executive, Mary Macleod, concluded: “We know that when women succeed, the UK succeeds, enabling our communities and planet to thrive. Deloitte is one of the companies leading the way in building a culture where women can reach their full potential by showing real commitment to addressing gender inequalities in the workplace.”

The Accounting and Financial Reporting Council (AFRC) has appointed a new convenor, Ernest Lee, and further reappointed two of its members, Hung Ming-yi and Wang Xin, to the Financial Reporting Review Panel (FRRP) by the HKSAR Government. 

The AFRC also expressed its gratitude to the 2 retiring FRRP members, Gu Zhaoyang and James Ohlson.   

Quality financial reporting is the bedrock of the effective functioning of the financial market and the source of public confidence in listed entities. Members of the FRRP play a significant role in conducting enquiries into possible non-compliance with accounting requirements in the financial reports of listed entities and making recommendations to the Board of the AFRC on the removal of non-compliance identified.  

Commenting on this, AFRC CEO, Marek Grabowski, said: “Members of the FRRP provide insights and advice to the AFRC to take timely and appropriate regulatory actions when noncompliance with accounting standards are identified in financial statements of listed entities. This, in turn, contributes to enhancing public confidence in the financial reporting of listed entities and investor protection.”   

AFRC chairman, Kelvin Wong, further said: “The FRRP has been playing an instrumental role in assisting the AFRC in conducting enquiries effectively. My heartfelt gratitude goes to the retiring members for their contributions during their tenure. I also extend my warmest welcome to the new convenor and reappointed members of the FRRP. As the independent regulator of the accounting profession, the AFRC will continue working closely with the FRRP to uphold the quality of financial reporting for the continued success of Hong Kong as a leading international financial centre.”

ICAEW has appointed Will Holt as its new managing director, education and training.  

Holt, who started the role on 3 July, replaces Hazel Garvey, who left ICAEW at the end of June. He will oversee ICAEW’s student offering, including the ACA qualification, routes into the profession, and talent and diversity.  

Commenting on his appointment, Holt said: “I’m excited to join ICAEW, where my focus will be on attracting and supporting the next generation of Chartered Accountants to succeed through our world-leading qualification.”  

ICAEW chief operating officer, Sharron Gunn, further said: “Will brings a wealth of experience to ICAEW. He will play an important role in the future development of the ACA and our work to attract students across the world, and we are pleased to have him join the team.”  

Holt qualified as a chartered accountant with PwC in 2006 and was the founding Dean of the Business School at Pearson College London. More recently, he founded a technology business focused on supporting inclusivity through recruitment.  

He has previously worked for ICAEW, where he held the role of senior manager, ACA development & special projects from 2011 to 2013. During this time, he worked on products to complement the ACA, and on the qualification’s redevelopment.

ACCA members and future members will have a route to attaining Registered Auditor status in South Africa following accreditation of the ACCA Qualification by the country’s Independent Regulatory Board for Auditors (IRBA).  

This further step in the recognition of our qualification is the culmination of a rigorous accreditation process with the IRBA.  

Commenting on this, ACCA chief executive, Helen Brand, said: “We’re delighted that the skills and knowledge of ACCA members in audit have been recognised in South Africa. This will increase opportunities for our members and future members, as well as our ability to make a strong and positive contribution to South Africa’s economy and society.”  

ACCA director – Africa, Jamil Ampomah, added: “We look forward to playing a key role contributing to diversity and innovation in South Africa’s audit profession. This welcome development is a positive reflection of the calibre of our members, the strength of the ACCA Qualification, and our well-established presence in South Africa.”  

IRBA CEO, Imre Nagy, further said: “This is a positive step forward for the audit profession in that it opens a prospective pipeline of qualified accountants who can pursue audit as a career. This will help alleviate some of the talent shortage that the firms are experiencing currently.”  

The announcement means that ACCA members with the right experience can from 1 April 2024 register for IRBA’s Audit Development Programme (ADP), an 18-month audit specialism process which is its pathway to Registered Auditor status.   

The skills of ACCA members in audit are also recognised through audit regulatory recognition in other countries such as the UK, Ireland and Zimbabwe. 

In an official release, ACCA stated that: “ACCA’s flexible qualification model has been welcomed in South Africa throughout our long history in the country, providing a route to becoming an accountancy professional that is both inclusive and innovative.” 

Businesses that are allowing employees to work flexibly overseas could find themselves in hot water if they are not aware of the tax requirements, says RSM UK. 

According to RSM UK’s latest ‘The Real Economy Report’, a third (33%) of businesses have allowed existing employees to work remotely outside of the UK in response to staffing challenges. Labour shortages are being felt across the board, with well over three quarters (88%) of businesses finding employee turnover a challenge. 

Of those that have offered hybrid working options to attract or retain employees, 31% of businesses have set restrictions on the length of time employees can work abroad. While this suggests that some businesses are considering the tax risks associated with working overseas, it also raises concerns over the two thirds of businesses with no restrictions in place that are perhaps less aware of the tax implications. Further considerations for businesses include employment law, social security, cyber security and immigration rules. 

Businesses are also looking overseas to source labour. Of those that have taken on labour from outside the UK due to staffing challenges, over half (52%) have increased the amount of overseas labour that they’ve taken on in the last year. The vast majority (79%) of these international workers have been sourced from the EU. 

Commenting on this, RSM UK global employer services partner, Joanne Webber, said: “It’s clear businesses recognise the importance of offering flexible working to attract and retain employees, and the pandemic has proved that this new way of working is possible, depending on the sector and role. Allowing employees to work overseas may seem like a great benefit, but often both employers and employees don’t fully understand what they’re signing up for, and they could be entering a tax minefield. For example, one area that can be easily overlooked when a UK employee works abroad is the individual could trigger a corporate presence (permanent establishment) for the UK company in that country, meaning the business may be subject to corporate tax and associated administration. 

“Current labour shortages are a real concern for businesses, so looking overseas may be their only option. But it begs the question how many of these workers are relocating to the UK or staying in their home country, as this could mean a tax loss to the UK economy. Hiring employees from outside the UK and allowing them to work from overseas won’t necessarily be a simple fix to labour shortages, as it will trigger the same risks that apply when allowing UK employees to work abroad. 

“There will be different tax rules depending on the country an individual chooses to work from, so employers venturing into ‘work for anywhere’ arrangements need to set parameters for staff and have a clear company policy in place, so everyone understands the risks.” 

RSM UK economist, Thomas Pugh, added: “The labour market looks set to remain tight for the foreseeable future, as high sickness levels and a challenging demographic outlook combine to reduce labour supply. One way firms are dealing with this is by recruiting more labour from overseas, but this will be difficult for many industries. 

“Firms will have to concentrate on upskilling their current employees and creating effective incentive schemes to retain staff. In addition, businesses that invest in productivity enhancing automation will find themselves in a much more competitive position once the economic upturn comes in 2024.”

The Association of Accounting Technicians has warned that the government must proceed with great caution before potentially tearing up anti-money laundering (AML) processes in an attempt to reform regulation.  

The government has launched a two-month consultation offering input on four proposals before they will decide on a route of reform. Three of these options would see the removal of OPBAS – the Office for Professional Body Anti-Money Laundering Supervision. OPBAS is currently made up of supervisors from different professional bodies, overseeing and regulating their members in collaboration with one another.  

One proposal would see OPBAS replaced by just a single private-sector professional body – while other possible scenarios would result in a significant transformation of the current landscape through a new regulator covering accounting and law, or alternatively a new regulator overseeing every profession. The remaining scenario in which OPBAS could remain in place would see them given more powers to regulate supervisors tackling money-laundering crimes. Unlike the other three proposals, AAT argues that OPBAS + is the most practical reform in terms of time and minimising risk during transition.  

According to Treasury data from 2020, Serious and Organised Crime, much of which is made up of economic crime, costs the UK economy approximately £37bn ($40bn) per year. AAT has outlined how this figure could rise if high-risk transitional options are opted for, as the crossover period alone could see a drop in compliance and supervision. The accounting sector can be particularly vulnerable to professional money launderers as businesses can be exploited and used to legitimise techniques.  

AAT has over 120,000 members supporting 500,000 small to medium-sized businesses across the UK. All these members are supervised by AAT’s own supervision role within the wider OPBAS structure.  

Commenting on this, AAT director of professional standards and policy, Adam Harper, said: “In this economic climate, the government cannot afford to take high risks with anti-money laundering, yet most of the new outlined proposals could see a dramatic rise in economic crime. 

“Consolidating supervision to just one private sector body could see a catastrophic collapse in supervision and dramatically elevate the risk of regulatory failure. Options for a cumbersome and potentially enormous regulator also carry with them significant transition risks, large costs to set up, and will take years to implement effectively.  

“OPBAS + is not only the most sensible solution but the most effective – enabling OPBAS to remove supervisors will improve compliance and address many of the government’s prior concerns. We recognise the need for change in AML regulation, but that should involve improving and evolving what we have built – not dismantling it all and starting again.”