Hong Kong, Special Administrative Region of China

Member Organizations

Member Organization Associate Other PAOs

  Hong Kong Institute of Certified Public Accountants

Legal and Regulatory Environment

  • Overview of Statuatory Framework for Accounting and Auditing

    The Companies Ordinance (Cap 622) sets out financial reporting requirements for all companies incorporated in Hong Kong and requires companies to apply accounting standards developed by the Hong Kong Institute of Certified Public Accountants (HKICPA). With authority established under the Professional Accountants Ordinance (Cap 50), HKICPA develops and issues Hong Kong Financial Reporting Standards (HKFRS), which are converged with the International Financial Reporting Standards (IFRS) and that are to be applied in the preparation of annual financial statements. HKICPA also develops and issues Hong Kong Standards on Auditing (HKSA), which are converged with the Clarified International Standards on Auditing that are to be applied in audits of financial statements. All companies registered in Hong Kong are required to have their financial statements audited, and audits of financial statements have to be carried out in accordance with HKSA. 

    Small- and Medium- sized Entities (SME) have the option of applying HKFRS for Private Entities, which are also developed and issued by HKICPA and are largely identical to IFRS for SMEs. Companies (except banks, licensed corporations, insurers and other financing entities) that are incorporated in Hong Kong and fulfill the reporting exemption criteria of the Companies Ordinance 2014, have the option of applying the SME Financial Reporting Framework and Financial Reporting Standard (SME-FRF & FRS), which are also developed and issued by HKICPA.

    In addition to requirements set out in the Companies Ordinance, there are additional financial reporting requirements for listed companies, banks and insurance companies. All listed companies, local or foreign, are subject to requirements as set out in the Hong Kong Stock Exchange (SEHK) Listing Rules and the Securities and Futures Ordinance (Cap 571). The Banking Ordinance (Cap 155) authorized the Hong Kong Monetary Authority to set financial reporting requirements for licensed banks, restricted banks, and deposit-taking companies. The Insurance Ordinance (Cap 41) authorized the Office of the Commissioner of Insurance to set financial reporting requirements for insurance companies. Listed companies, banks and insurance companies follow HKFRS. Mainland Chinese companies that are listed on the SEHK have an option of following HKFRS or China Accounting Standards for Business Enterprises, which are developed by the Accounting Regulatory Department of the Ministry of Finance of the People’s Republic of China and are substantially converged with IFRS.

  • Regulation of Accountancy Profession

    The accountancy profession in Hong Kong is self-regulated under the Professional Accountants Ordinance (PA Ordinance) by the Hong Kong Institute of Certified Public Accountants (HKICPA).

    Under the PA Ordinance, professional accountants in Hong Kong are designated as Certified Public Accountants (CPA) and Certified Public Accountants Practicing (CPA (Practicing)) for auditors. These designations are conferred by HKICPA. Membership and a practicing certificate issued by HKICPA is mandatory for auditors. The PA Ordinance also establishes the functions of the HKICPA, including maintaining a registry of all professional accountants and firms, regulating the practice of accountancy professionals by establishing quality assurance reviews and an investigation and discipline systems for members and member firms, setting ethical requirements for members, setting auditing and accounting standards to be applied in Hong Kong, and setting initial professional development and continuing professional development (CPD) requirements.

    To qualify to become a professional accountant with the HKICPA, individuals have to complete the Qualification Program (QP) offered by HKICPA, which is made up of four technical modules that include technical workshops, a final examination of professional competence, and completing supervised practical experience. To qualify for the QP, a Bachelor’s degree in accounting from any Hong Kong tertiary institution, or an overseas degree, or other academic qualification accepted by HKICPA is required. Individuals who wish to practice as auditors are required to satisfy up to four-years of full-time approved work experience, pass relevant Practicing Certificate examinations in auditing, local law and taxation (if not qualified through the QP), and complete relevant CPD. Annual CPD is mandatory for all CPA’s.

    The HKICPA QP is benchmarked to a number of qualifications of other leading professional accountancy organizations. HKICPA accordingly has mutual recognition agreements, of varying degrees, with a number of other leading professional accountancy organizations.

    Under the Financial Reporting Council Ordinance, the Financial Reporting Council (FRC) is responsible for investigating apparent “relevant irregularities”, as defined under Section 4 of the FRC Ordinance, in the financial statements and audits of Hong Kong listed companies. The FRC is not empowered to discipline or sanction any company or individual and refers cases to HKICPA, the Securities and Futures Commission, and the Stock Exchange of Hong Kong for further action.

  • Audit Oversight Arrangements

    There are currently no established independent audit oversight arrangements in Hong Kong, with the conduct of auditors monitored by the Hong Kong Institute of Certified Public Accountants (HKICPA).

    Under the Professional Accountants Ordinance, HKICPA is responsible for maintaining a registry of all professional accountants and firms, regulating the practice of accountancy professionals by establishing quality assurance reviews and an investigation and discipline systems for members and member firms, setting ethical requirements for members, setting auditing and accounting standards to be applied in Hong Kong, and setting initial professional development and continuing professional development requirements.

    Established in 2006 under the Financial Reporting Council Ordinance, the Financial Reporting Council (FRC) is an independent statutory body with the role of conducting independent investigations into auditing and reporting irregularities in relation to listed companies, and enquiring into possible non-compliance with accounting requirements on the part of listed companies. However, the FRC has no disciplinary authority and all findings by the FRC that concern HKICPA members and member firms are referred to the HKICPA.

    HKICPA reports that the system of audit regulation in Hong Kong is undergoing changes to introduce an independent oversight of the inspection of listed company audits. In June 2015, the Financial Services and Treasury Bureau (FSTB) of the Hong Kong Government concluded a consultation on proposals to introduce an independent regulatory regime for listed entity auditors in Hong Kong and a summary of the consultation and comments to the consultation has been released to the public. Based on the conclusions of the consultation, which included overwhelming support to establish an independent regulatory regime for auditors of listed entities, the FSTB plans to prepare legislation during the 2017–2018 Hong Kong Government Legislative Session.

  • Professional Accountancy Organizations

    The Hong Kong Institute of Certified Public Accountants (HKICPA) was established in 1973 under the Professional Accountants Ordinance (PA Ordinance) and is responsible for regulating the accountancy profession. Section 7 of the PA Ordinance established the functions of the HKICPA including, maintaining a registry of all professional accountants and firms, regulating the practice of accountancy professionals by establishing quality assurance reviews and an investigation and discipline systems for members and member firms, setting ethical requirements for members, setting auditing and accounting standards to be applied in Hong Kong, and setting initial professional development and continuing professional development requirements. Under the PA Ordinance, HKICPA is responsible for certifying professional accountants in Hong Kong including issuing the designation of Certified Public Accountants (CPA), and Certified Public Accountants Practicing (CPA (Practicing)). Having a practicing certificate issued by the HKICPA is mandatory for auditors.

    In addition to being an IFAC member, HKICPA is a member of the Global Accounting Alliance.

  • Projects or Other Information

    The Hong Kong Institute of Certified Public Accountants, the Financial Reporting Council, and the Financial Services and Treasury Bureau (FSTB) of the Hong Kong Government began a joint initiative in 2012 with the aim to establish an independent body to provide oversight of auditors of listed-companies in Hong Kong.

    There was a public consultation that concluded in June 2015 with significant responses from local and global stakeholders. Based on the consultation conclusions the FSTB will prepare legislation to establish an independent regulatory regime for auditors of listed entities that is planned to be introduced in the 2017–2018 Hong Kong SAR Government Legislative Session.

Adoption of International Standards

  • Quality Assurance

    Under the Professional Accountants Ordinance, the Hong Kong Institute of Certified Public Accountants (HKICPA) is responsible for implementing mandatory quality assurance (QA) reviews of all auditors and firms carrying out audits of financial statements.

    The QA functions of HKICPA comprise two components: the practice review program and the review of published financial statements of companies listed on the Stock Exchange of Hong Kong.

    HKICPA has issued quality control standards requiring firms to implement a system of quality control in line with the Hong Kong Standard on Quality Control 1 (HKSQC 1), which is converged with the International Standard on Quality Control 1 (ISQC 1). HKICPA reports that its practice review program procedures manual was updated in 2014 to incorporate the revised requirements of SMO 1.

    Current Status: Adopted

  • International Education Standards

    Under the Professional Accountants Ordinance, the Hong Kong Institute of Certified Public Accountants (HKICPA) is responsible for setting initial professional development and continuing professional development requirements for all professional accountants in Hong Kong.

    Professional accountants in Hong Kong are defined as Certified Public Accountants (CPAs) and Certified Public Accountants Practicing (CPA (Practicing)) for auditors.

    HKICPA reports that its education requirements are in compliance with the IES, and in some areas are more stringent. The institute reports that IES 8 will be introduced with effect from July 1, 2016.

    Current Status: Adopted

  • International Standards on Auditing

    Under the Professional Accountants Ordinance, the Hong Kong Institute of Certified Public Accountants (HKICPA) is responsible for setting auditing standards in Hong Kong that are to be applied in all audits of financial statements. Hong Kong Standards on Auditing have been converged with the ISA issued by the IAASB since 2005. The Clarified Hong Kong Standards on Auditing), converged with the Clarified ISA of the IAASB, were issued in 2010 by the Auditing and Assurance Standards Committee of HKICPA.

    HKICPA has also issued the Hong Kong Standards on Quality Control, Hong Kong Framework for Assurance Engagements, Hong Kong Standards on Review Engagements, Hong Kong Standards on Assurance Engagements, Hong Kong Standards on Investment Circular Reporting Engagements, and Hong Kong Standards on Related Services, most of which are converged with the international equivalent.

    Current Status: Adopted

  • Code of Ethics for Professional Accountants

    Under the Professional Accountants Ordinance, the Hong Kong Institute of Certified Public Accountants (HKICPA) is responsible for setting ethical requirements for professional accountants in Hong Kong.

    HKICPA has developed its own Code of Ethics and Parts A, B and C of its Code are identical to the 2015 IESBA Code of Ethics. Additional Parts D and E are included in the HKICPA Code as guidance for members to reflect local circumstances and provide guidance on insolvency and liquidation.

    Current Status: Adopted

  • International Public Sector Accounting Standards

    Under the Public Finance Ordinance (CAP 2), Hong Kong applies both cash accounting and accrual accounting.

    Central government accounts are prepared on a cash basis. Annual consolidated “whole of government” accounts that include all government controlled entities are prepared on an accrual basis. The Hong Kong Institute of Certified Public Accountants (HKICPA) reports that there are a wide range of public sector entities, including bodies with substantial government holdings that are publicly listed and they prepare financial statements in accordance with Hong Kong Financial Reporting Standards.

    HKICPA reports that while IPSAS have not been adopted and the local government does not have plans to adopt the standards, the government does directly monitor pronouncements and updates by the IPSASB.

    Current Status: Not Adopted

  • Investigation and Discipline

    The responsibility for the Investigation and discipline (I&D) of professional accountants in Hong Kong rests with the Hong Kong Institute of Certified Public Accountants (HKICPA).

    Under the Professional Accountants Ordinance, HKICPA is responsible for an I&D function for all Certified Public Accountants and firms. HKICPA reports that it’s I&D process is in line with the requirements of SMO 6.

    The Financial Reporting Council (FRC) also investigates apparent “relevant irregularities”, as defined under Section 4 of the Financial Reporting Council Ordinance, in the financial statements or audits of Hong Kong listed companies. The FRC is not empowered to discipline or sanction any entity or individual and refers investigation findings to HKICPA, the Securities and Futures Commission, and the Stock Exchange of Hong Kong as appropriate.

    Current Status: Adopted

  • International Financial Reporting Standards

    Under Section 18A of the Professional Accountants Ordinance, the Hong Kong Institute of Certified Public Accountants (HKICPA) is responsible for setting accounting standards in Hong Kong.

    Hong Kong Financial Reporting Standards (HKFRS) are converged with International Financial Reporting Standards (IFRS) and apply to all companies in Hong Kong. Companies that are incorporated outside Hong Kong and foreign companies which are listed in Hong Kong are permitted to use HKFRS or IFRS.

    Small- and Medium- sized Entities (SME) have the option of applying HKFRS for Private Entities, which are also developed and issued by HKICPA and are identical to IFRS for SME. Companies that are incorporated in Hong Kong (except banks, licensed corporations, insurers and other financing entities) and fulfill the reporting exemption criteria of the Companies Ordinance 2014 have the option of applying the SME Financial Reporting Framework and Financial Reporting Standard (SME-FRF & FRS), which are also developed and issued by HKICPA.

    Current Status: Adopted

Disclaimer

IFAC bears no responsibility for the information provided in the SMO Action Plans prepared by IFAC member organizations. Please see our full Disclaimer for additional information.

Methodology

Methodology
Last updated: 09/2016
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