Report on the Analysis of the PIE Audit Market in Hong Kong

The Report provides a comprehensive overview and analysis of the market environment in which public interest entity (PIE) auditors in Hong Kong operate. The findings of the Report came from research which includes a survey conducted in November 2023 to all local PIE auditors¹ with at least one PIE engagement during the period from 1 July 2020 to 30 June 2023 and research on audit fee and market share trends from 2018 to 2022.²

Key findings include:

1. As at 30 June 2023, the actual number of individuals working in PIE audits grew by 191 year-on-year to 8,960. The majority of the total growth in headcount can be attributed to the increase in service delivery centre staff.
2. The local PIE audit market has been facing challenges such as high vacancy rates. This challenge is most apparent among junior grades of smaller local PIE auditors. The vacancy rate of associates in Category B and C PIE auditors was 16.1% and 25.5% respectively as at 30 June 2023.³ These elevated vacancy rates may derail PIE auditors’ efforts to establish stable audit teams and uphold audit quality.
3. The market share of Category A PIE auditors by number of engagements has experienced a noticeable decline, dropping continuously from 73.0% in 2018 to 62.1% in 2022. Category B PIE auditors were the primary beneficiaries of this shift, with their market share increasing from 18.6% in 2018 to 30.2% in 2022.
4. When asked how frequently audit teams of PIE auditors experienced fee pressure that may compromise audit quality in 2023, the results show that many PIE auditors continued to experience fee pressure. Specifically, 33.3% of Category A PIE auditors, 47.6% of Category B PIE auditors, and 52.9% of Category C PIE auditors experienced fee pressure.
5. All categories of PIE auditors have at least one practice unit that had provided less than 20 verifiable hours of continuing professional development (CPD) training⁴ to each partner and staff on average in the year ended 30 June 2023. The problem is most acute for Category C PIE auditors with 76.5% providing less than 20 verifiable CPD hours, followed by Category B PIE auditors (38.1%).
6. There is a noticeable gap between the technologies that PIE auditors believe will positively impact audit quality and the technologies they had deployed in the audit process in the year ended 30 June 2023. The most significant gap is the adoption of data analytical software. While 88.6% of auditors agreed that it has a positive impact on audit quality, only 22.7% had implemented it during the audit process in the year ended 30 June 2023.

Based on the Report's findings, the AFRC urges PIE auditors to act on eight key messages outlined in the Report. These key messages are categorised into three sections, namely: Staff, Systems, and Strategy. The Report also provides key messages to audit committees of PIEs.

¹ A local PIE auditor refers to a Hong Kong PIE auditor registered under Division 2 of Part 3 of the Accounting and Financial Reporting Council Ordinance (Cap. 588).

² The research on audit fee and market share trends is an update to the AFRC’s research report on the audit market published in March 2023, “Audit fees paid by listed companies in Hong Kong in 2020/2021” 

³ Category A, B, and C PIE auditors completed more than 100, between 10 and 100, and at least one but fewer than 10 listed entity audits annually, respectively.

⁴ The CPD requirement for members of the Hong Kong Institute of Certified Public Accountants is 60 verifiable CPD hours in a three-year rolling period. The above analysis uses 20 verifiable hours annually as a benchmark for comparative purposes.