AFRC issues open letter to PIE auditors on upholding audit quality and professional integrity amid rising IPO engagements

The Accounting and Financial Reporting Council (AFRC) today issued an open letter to all public interest entity (PIE) auditors acting as reporting accountants for entities seeking to list their shares on the Stock Exchange of Hong Kong (i.e., initial public offerings or IPOs).
 

The recent surge in IPO activities has further underscored the pivotal role of PIE auditors in driving the growth and dynamism of Hong Kong’s capital markets. However, this trend has also presented unprecedented challenges in maintaining highquality audits. In light of this, the AFRC has expressed concerns over the rapid increase in IPO audit engagements, through its open letter. The letter reminds PIE auditors of their critical responsibilities, which include safeguarding audit quality, upholding professional independence and integrity, and reinforcing public trust in Hong Kong’s capital markets.
 

The AFRC is aware that several PIE auditors have taken on an exceptionally high volume of IPO engagements in addition to their existing PIE engagement portfolios. This rapid growth raises serious questions about whether these auditors have the requisite competencies and capabilities to diligently fulfil their professional responsibilities without compromising audit quality.
 

Key Expectations
 

In the open letter, the AFRC outlines its key expectations for PIE auditors and reiterates their indispensable role in maintaining the quality of financial reporting and public trust in Hong Kong’s capital markets. The key expectations include:
 

(i) Placing Audit Quality and Integrity Above All Other Considerations
(ii) Ensuring Sufficient Expertise and Resources for IPO Engagements
(iii) Committing to Sustainable Resources Management to Protect Audit Quality
(iv) Fulfilling the Critical Role of the Engagement Partner and Engagement Quality Reviewer
(v) Other Specific Expectations for IPO Engagements
 

Call for Immediate Action
 

PIE auditors are strongly urged to immediately undertake a thorough evaluation of their resources and critically assess whether they possess the necessary competencies and capabilities to deliver high-quality audits for both their existing and new IPO engagements. The AFRC will require PIE auditors to provide an updated list of their ongoing IPO engagements, their plans to take on any new IPO engagements, and details of their resourcing information.
 

Our Actions
 

To ensure that audit quality remains uncompromised, the AFRC will closely monitor how PIE auditors are managing their growing portfolios while maintaining audit quality, independence, integrity and professionalism. Practices that fall short of our expectations should expect heightened scrutiny and regulatory intervention.

The AFRC remains available to engage in dialogue with PIE auditors regarding any matters raised in the letter. Open and proactive communication is strongly encouraged to collaboratively address potential challenges.