Following is a question by Dr the Hon Webster Ng and a reply by the Secretary for Financial Services and the Treasury, Mr Christopher Hui, in the Legislative Council today (July 15):

Question:

     It is reported that in recent years, some accounting services intermediaries undertook audit business work at abnormally low fees, while the annual remuneration of the independent non-executive directors (INEDs) of certain listed companies was obviously on the low side. There are views pointing out that the above situations may reflect that the manpower, time and resources put into the relevant work were insufficient, which has affected audit quality and the standards of corporate governance. In this connection, will the Government inform this Council:

(1) whether the Government or the Accounting and Financial Reporting Council has conducted investigations, assessments or statistical surveys over the past three years on respective market situations in which audit business work was undertaken at abnormally low fees, and the remuneration of INEDs was obviously on the low side; if so, of the details;

(2) whether the Government has any existing mechanism to monitor the levels of fees charged by accounting services intermediaries for audit services and the levels of remuneration of INEDs of listed companies to ensure that the manpower required, workload and professional procedures are commensurate with the fees and remuneration; and

(3) whether the Government will study and formulate measures jointly with the relevant stakeholders to combat the practice of providing audit services at abnormally low fees, and review the guidelines on remuneration of INEDs in the Corporate Governance Code issued by the Stock Exchange of Hong Kong Limited to avoid the possibility of low remuneration affecting the governance of the boards and audit committees of corporations?

Reply:

President,

     High-quality audits and sound corporate governance are the cornerstones of market confidence and investor protection. In consultation with the Accounting and Financial Reporting Council (AFRC) and Hong Kong Exchanges and Clearing Limited (HKEX), our consolidated reply to the various parts of the question from Dr the Hon Webster Ng is as follows:

Monitoring audit quality

     Monitoring audit quality is a core function of the AFRC. The Accounting and Financial Reporting Council Ordinance (Cap. 588) confers statutory powers on the AFRC to perform its duties. Regarding whether audit fees directly affect audit quality, the AFRC notes that there are differing views in the market. To examine this issue, the AFRC has been collecting relevant views and data through market research and questionnaires, as well as systematically gathering information on the level of audit fees for listed companies in Hong Kong.

     According to the "Report on the Analysis of the Public Interest Entity Audit Market in Hong Kong" published by the AFRC in March 2024, audit fees for Hong Kong listed companies remained stable between 2018 and 2022, with the compound annual growth rates of mean and median audit fees being 0.4 per cent and 0.2 per cent respectively. In 2022, the mean and median audit fees per engagement were maintained at HK$5.4 million and HK$2.1 million respectively, broadly in line with previous years. As for non-listed companies, there is currently no requirement for practice units to disclose relevant audit fee information, and the AFRC has not compiled statistics in this regard.

     In response to cases where companies appointed auditors solely on the consideration of audit fees, the AFRC issued two open letters and one set of guidance notes in 2022 and 2023, clearly stating that the consideration of audit quality should outweigh audit fees in auditor selection. Between 2023 and 2024, the AFRC also collaborated with professional bodies and regulators to conduct a series of thematic briefings, reminding the market of the importance of prudent auditor appointment and appropriate determination of audit fees. Since the AFRC's proactive attention to the issue and implementation of the above measures, the AFRC has observed that the proportion of auditor changes in listed companies involving fee cuts of 20 per cent or more has gradually decreased from 62 per cent in 2020 to 53 per cent in 2024.

     Under the mechanism of a free market, audit fee levels are influenced by supply and demand, and practice units determine their fees based on their own commercial considerations. In the current circumstances, it may not be conducive to industry development for the Government or the AFRC to set or interfere with fee levels. However, the AFRC is duty-bound to uphold audit quality, and the existing regulatory regime already provides adequate safeguards. In its day-to-day regulatory work, the AFRC monitors whether auditors possess sufficient resources and professional competence to discharge their duties. If the level of audit fees of an engagement is clearly disproportionate to the scope, risk and complexity of the work, the AFRC will further examine whether sufficient manpower, time and professional resources have been deployed, and assess whether there are any issues relating to audit quality or professional conduct. Where audit services are referred through accounting service intermediaries, the auditors concerned are still required to adhere to professional ethics and remain responsible for audit quality and professional judgment. If there is evidence that auditors have failed to comply with auditing standards or ethical requirements, the AFRC will take appropriate regulatory or disciplinary action in accordance with the law. In the event that suspected criminal conduct is identified, the case will be referred to the Police for investigation.

     The AFRC will continue to engage with the industry and welcomes the reporting of improper conduct. It will keep the situation under review and, where necessary, introduce further measures, including the provision of guidance and education, with a view to upholding audit quality.
     
Corporate Governance of Listed Companies

     The Government is committed to promoting HKEX to continuously enhance the corporate governance standards of listed issuers. To ensure the effectiveness, independence and diversity of boards of directors, the existing Listing Rules and Corporate Governance Code have established relevant governance and disclosure framework to raise governance standards and at the same time provides issuers with sufficient flexibility to cater for their operational and business needs, thereby supporting the robust development of the capital market. The latest amendments to the Corporate Governance Code and the related Listing Rules by HKEX came into effect in July 2025. These include the introduction of requirements for directors' continuing professional development and enhanced disclosure requirements on board performance evaluation, with a view to strengthening directors' ability to discharge their duties and improving overall board effectiveness.

     With respect to the appointment and remuneration of directors of listed issuers, the Listing Rules require issuers to establish a Nomination Committee chaired by the chairman of the board or an independent non-executive director (INED), and a Remuneration Committee chaired by an INED. In both committees, INEDs must constitute the majority of members. The Nomination Committee is required to formulate and disclose a policy on the nomination of directors. The Remuneration Committee is required to establish policies and procedures relating to directors' remuneration, and make recommendations to the board on the policy and structure for directors' and senior management remuneration. The Corporate Governance Code further stipulates that issuers should formulate formal and transparent policies and procedures on directors' remuneration and other remuneration related matters, with a view to maintaining the reasonableness of directors' remuneration. HKEX also provides issuers with guidelines and resources through various arrangements to assist them in realising and enhancing corporate governance of directors.

     Taking into account the above, the Government is confident that the existing mechanisms are sufficient to safeguard audit quality and enhance the corporate governance standards of listed issuers. The AFRC and HKEX will also continue to discharge their respective duties diligently and exercise stringent oversight. We welcome views from the market and the industry as we continue to introduce various monitoring and enhancement measures to combat improper conduct, with a view to jointly promoting the healthy development of Hong Kong's capital markets.

     Thank you, President.

Ends/Wednesday, July 15, 2026
Issued at HKT 15:39

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