Hong Kong audit watchdog warns of quality risks amid undercutting and tight deadlines
Of the 16 auditors inspected by the AFRC, 13 accepted lower fees than the previous firm, while 12 have been asked to step up their audit quality
The head of Hong Kong’s auditing watchdog has raised concerns that some auditors are accepting jobs from listed companies at cheaper rates and too close to reporting deadlines, warning that this could affect the quality of their work.
The Accounting and Financial Reporting Council (AFRC) said that 17 per cent of the 2,631 Hong Kong-listed companies changed auditors last year. The AFRC also said that it had randomly checked the work of 16 replacement auditing firms.
The regulator found that of these 16 firms, 13 had received lower fees compared with the previous auditors, while 12 had quality issues and urged them to make improvements.
“Many of these audits were conducted under tight timelines due to late changes in auditor appointments, close to the reporting deadline,” said CEO Janey Lai Chui-pik at a media briefing on the annual audit quality review on Tuesday. “These practices threaten both the independence of auditors and the quality of audits.”
One of the main reasons listed companies changed auditors was cheaper auditing fees, as existing auditors refused to give discounts.
“After the two sides have lengthy discussions and still cannot reach an agreement on cheaper auditing fees, a listed company usually finds a cheaper auditor just one or two months before the auditing deadline,” she said. “In one case, a company changed its auditor three times in a year.”