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Following is the full text of the speech delivered by the Secretary for Financial Services, Mr Rafael Hui, at the opening ceremony of the Australian Society of Certified Practising Accountants' (ASCPA) 5th Regional Conference in Hong Kong today (Friday):

Mr Pontiny, Ladies and Gentlemen,

I am delighted to have the opportunity to address the Australian Society of Certified Practising Accountants' 5th Regional Conference in Hong Kong today. This is the second time I have been accorded such an honour. The previous occasion was before the Handover. For those who come from overseas, this will be a wonderful opportunity, to compare the 'before', and the 'after' and to witness at first hand, how we are beginning to recover from the financial turmoil of the last two years.

The ASCPA has been associated with Hong Kong for nearly half a century as the Hong Kong Branch was established in the early 1950's. Since those early days, the Society has steadily grown in size reaching a total of 6,100 members today, many of whom play key roles in Hong Kong's commercial and business life. In fact, the ASCPA predates the Hong Kong Society of Accountants (HKSA) by nearly twenty years and some members of ASCPA were instrumental in the establishment of the HKSA in 1973. Today, many accountants in Hong Kong are members of both the ASCPA and HKSA and both organisations are very close partners.

In 1973, the development of the accountancy profession in Hong Kong took a major step forward with the establishment of the HKSA under the Professional Accountants Ordinance. Its official mandate was to be a self-regulatory body for the accountancy profession. And, as the Society's first President - Gordon Macwhinnie - observed in a small opening ceremony: 'I know this organization has a great part to play in the future development and prosperity of Hong Kong'. These were prophetic words as, over the ensuing 26 years, Hong Kong has firmly established itself as an international financial and business centre. The professional underpinning provided by an ever increasing body of professionally qualified accountants is an important factor contributing to such phenomenal growth. The importance of the profession is further recognised in 1988 with the establishment of the Accountancy Functional Constituency in our Legislative Council. Today, the member who represents the accountancy profession sits in the Legislative Council and plays an active role in shaping the development of our company and financial laws.

Whilst providing for the self-regulatory framework, the Government is acutely conscious of the rapid development of the financial markets and the increasing expectations placed upon the accountancy profession by members of the public. We therefore always have worked closely with the profession to ensure that the profession itself adapts promptly and adequately to the ever changing demands and responsibilities in Hong Kong society and business life. In this respect, much has been done or initiated by the Government over the past ten years to help the profession flourish and in particular enhance the role of auditors in the corporate and financial arena.

Following a number of corporate and bank failures in the 80's, the Government reviewed the role of auditors in the reporting of suspected fraud in respect of financial institutions which are subject to prudential supervision, such as banks, insurance companies and securities and commodities dealers. As auditors gain significant insight into the soundness or otherwise of such institutions, members of the investing public rightly expected that auditors play a more active role in the reporting of suspected fraud. Towards this end, the following legislative amendments were instituted in the 90's -

* Banking (Amendment) Ordinance 1990 and 1992;

* Securities (Amendment) Ordinance 1992;

* Commodities Trading (Amendment) Ordinance 1992; and

* Insurance Companies (Amendment) Ordinance 1993.

These amendments were designed to enhance the protection for auditors to facilitate them in carrying out their duties in respect of report of suspected fraud in regulated institutions. These provisions have served us well. As many of you will be aware, we intend to provide immunity for auditors reporting of fraud in listed companies in the forthcoming composite Securities and Futures Bill.

In the past decade, changes to the Listing Rules of the Stock Exchange also have resulted in expanding the role of accountants and auditors in relation to companies listed on the Stock Exchange. Examples of such changes include -

* The requirement for additional financial disclosures in annual reports and listing documents to improve the standard of financial disclosure and enhance the transparency in annual reports and listing documents.

* The requirement for all listed banking companies to comply with the Best Practice Guide issued by the Hong Kong Monetary Authority, to disclose their true profits in the accounts and listing documents, as well as a detailed profit and loss account.

* The requirement to disclose a statement indicating the extent to which the listed issuer complies with the Code of Best Practice in its annual and interim reports.

* Specifying in the Listing Rules the instances where timely public disclosure is required.

To comply with the new requirements under the Listing Rules would mean additional work for both the in-house accountants and external auditors. In-house accountants of listed companies would have to improve their accounting system so that the required information can be accurately extracted from the accounting records on a timely basis. External auditors have to adopt new procedures to verify the accuracy of such additional information disclosed in the annual report and accounts.

Auditors also have been given a new role under the Securities and Futures Commission's Code of Conduct for Fund Managers. They are required to conduct auditor reviews of the systems and controls of trustees of collective investments offered to the public in Hong Kong.

As society becomes more sophisticated, the role of accountants and auditors has expanded beyond the traditional confines of individual companies. There is increasing reliance on the service of professional accountants. For example, in the Official Receiver's Department, a system of contracting out non-summary court winding up cases to accountants who are members of the Hong Kong Society of Accountants was introduced in 1996 and further to that, a system of contracting out summary winding up cases to accountants in the private sector was introduced as a pilot scheme in 1997 and a regular contracting out scheme from this year onwards. A new piece of legislation which will provide for a system of corporate rescue will soon be introduced into the Legislative Council. Under the proposed legislation, accountants will be qualified to undertake the role of 'corporate rescuers' or provisional supervisors.

The changing role of accountants is perhaps even more evident in two pieces of legislation which were enacted in the past decade - the Occupational Retirement Schemes Ordinance and the Mandatory Provident Fund Schemes Ordinance. Without going into details, under the Ordinances, we rely on the professional accountants to -

* Prepare proper accounts and auditor reports in respect of assets of occupational retirement schemes;

* Prepare special reports in relation to a scheme's accounts;

* Maintain proper accounting records of transactions and financial statements of registered provident fund schemes;

* Prepare auditor's reports on the financial statements of registered schemes.

Members of the public have high expectations of the profession. Important tasks are placed on the shoulders of the accountants, as practitioners will become the lynchpin in ensuring the accounts of Hong Kong's retirement schemes are in good order and that they comply with the legislative requirements. All these are additional tasks and responsibilities. But, on the other hand, in the accounting world where credits and debits eventually balance or are made to balance each other out, I can safely presume the additional work is remunerated proportionally.

The Government has been conscious of the changing role and needs of accountants and has instituted measures to facilitate their work. For example -

* At the beginning of the decade, there was very considerable concern over the quality of audit reports as an increasing number of such reports were so heavily qualified as to be meaningless. As a result of consultation between the Government and the profession, the HKSA was given new internal policing powers in Part IVA of the Professional Accountants Ordinance, enacted in 1992. This inaugurated a programme of practice reviews whereby the HKSA monitors the performance of practising members and firms by reference to their degree of compliance with the Society's auditing, accounting and ethical standards insofar as they relate to auditing. Since the inception of practice reviews in 1992, a total of about 1,000 Certified Public Accountant (CPA) firms and CPAs have been reviewed and, in recent years, the HKSA has performed about 150 practice reviews every year.

* Recognising that the accountancy profession was facing an increasing exposure to large liability claims for professional negligence arising from audits, and that the principle of unlimited liability for all partners irrespective of fault was inequitable, amendments were made to the Profession Accountants Ordinance in 1995 to permit accountancy practices to incorporate with limited liability.

* To ensure that the professional accountants will have the required competence and training to meeting future challenges, the Professional Accountants Bylaw were amended in 1998 to raise the minimum pre-entry education requisite for registration as students of the HKSA to accountancy degree level.

* To facilitate the accountants who are involved in the work of listed companies, amendments were made to the Listing Rules of the Stock Exchange to clarify the scope and timing of interim reporting requirements and to specify the minimum profit record requirement of new listing applicants.

* At the initiative of the HKSA, the Stock Exchange's Code of Best Practice was revised with the effect that every listed issuer is expected to establish an audit committee, with the principal duty to review and supervise an issuer's financial reporting process and internal controls. This measure which fosters good corporate governance also facilitates the work of accountants as they may resolve their problems through liaison with the audit committee.

The last decade has been a period of momentous development for the profession : we have witnessed the recognition by the Government and the community of the status and needs of accountants who have assumed an increasingly important role in providing quality assurance in our corporate and commercial world; we have also seen the challenges which the profession has weathered and the new business opportunities upon which practitioners have capitalised.

But regrettably, the 1990's ended almost as they had begun with a number of corporate failures resulting from the economic downturn and a large increase in the number of 'questionable' audit reports referred by the SEHK to the HKSA. I am glad that the HKSA has responded positively. Recognising its self-regulatory role, it has made increasing use of the provisions of Part VA of the Professional Accountants Ordinance concerning 'Investigations into Misconduct of Professional Accountants'. Since the beginning of 1999, a total of five Investigation Committees have been appointed by the HKSA and, in the case of most of these, the investigations are still in progress. Furthermore, in consultation with the SFC and SEHK, HKSA has developed a 'protocol' laying out the practices and procedures to be followed whenever the SFC and SEHK in their capacities as regulators wish to refer a matter to the HKSA for investigation.

Looking into the future, I believe that self-regulation remains the appropriate form of regulation for the accountancy profession. However, times change and the old form of self-regulation which may have been appropriate for the 1970's and 1980's is not necessarily appropriate as we move into a new millennium. For self-regulation to be effective, the system and players must have regard to the wider social context within which they operate.

In this connection, I welcome the HKSA's recent decision to appoint three non-accountants to the Disciplinary Panel for subsequent appointment to any Disciplinary Committees which may be convened to deal with breaches of professional standards. But, I have to stress that this must be only the start. If self-regulation is to mean anything, the accountancy profession must accept that there has to be a far greater degree of disclosure and transparency in the way in which the profession regulates its affairs. One way of achieving this, is through the increasing appointment of suitably qualified lay persons to committees handling areas of particular public interest and concern in the accountancy profession such as discipline, investigations and ethics. One further step will be to introduce lay participation in the Council of the HKSA. Increased lay participation is the direction in which accountancy bodies in other developed jurisdictions such as the United Kingdom are moving, and it is the direction in which Hong Kong must move if self-regulation by the accountancy profession is to continue to have credibility.

Transparency is only one facet of the development of the accountancy profession. How to enhance and modernize the well established self-regulatory system and to live up to the expectation of the community in this rapidly changing era will remain the challenge for the accountancy profession in the years ahead. There will continue to be more and more business opportunities but, at the same time, the profession must also readily accept a greater degree of public scrutiny, and, no pun intended, accountability.

Ladies and Gentlemen, in conclusion I would like to wish the ASCPA a very successful conference. I am confident that it will further strengthen the links between accountancy bodies in the region in general and Hong Kong and Australia in particular. In this age of globalization, no accountancy body can afford to be an island unto itself and there is much that we can and must learn from each other. Thank you.

End/Friday, November 26, 1999

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