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AFRC issues open letter to PIE auditors on upholding audit quality and professional integrity amid rising IPO engagements
AFRC issues open letter to PIE auditors on upholding audit quality and professional integrity amid rising IPO engagements 13 February 2026 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. ... The AFRC remains available to engage in dialogue with PIE auditors regarding any matters raised in the letter.
AFRC issues the Audit Fee Report and 2023 Survey Report on the implementation of Guidelines for Effective Audit Committees – Selection, Appointment and Reappointment of Auditors
There is a strong association between a change in auditors and a subsequent reduction in audit fees. In 2020 and 2021, the number of listed companies which changed auditors continued to increase. Out of the 249 and 285 listed companies that changed auditors in 2020 and 2021, 80.7% and 69.5% experienced a fee reduction.
FRC concludes that a listed entity failed to recognise an impairment loss on equity investments and its auditor failed to identify the misstatements
FRC concludes that a listed entity failed to recognise an impairment loss on equity investments and its auditor failed to identify the misstatements 17 December 2021 The FRC adopted an enquiry report and an investigation report, which found that: a listed entity ( Listed Entity ) failed to recognise an impairment loss on the available-for-sale equity investments ( the Investments ) in the consolidated financial statements for the year ended 31 December 2016 ( 2016 Financial Statements ); and the auditor ( the Auditor ) of the Listed Entity failed to identify the material misstatements in relation to the impairment of the Investments in the 2016 Financial Statements. ... The audit quality failure of the Auditor The Auditor failed to identify the above material misstatement and therefore issued an inappropriate unmodified audit opinion. ... It also requires the auditor to obtain an understanding of the applicable financial reporting framework.
AFRC calls for concerted efforts to improve the quality of financial reporting and audit in Hong Kong
The report summarises insights gathered from roundtable discussions with investors, members of audit committees, and auditors of listed companies. The discussions focused on audit quality of Hong Kong listed companies and the threat posed to them by stagnation of audit fees and opportunistic changes of auditors. ... It may also force audit firms to rely on revenue from non-audit services, which may undermine the auditor’s independence. The threat to audit quality stemming from instances of opportunistic changes of auditors The report also discusses the phenomenon of companies changing auditors to save on audit fees and changes of auditors taking place late in the reporting period. ... Investors should: Drive high quality and reliable financial reporting: Be vigilant for red flags signifying possible issues with audit quality, express concerns about changes of auditors, audit fees and the auditor selection process and demand that investee companies accurately reflect climate-related factors in their financial reporting.
Disciplinary Sanctions
An overview of the types of sanctions applicable to the two categories of regulatees is set out below: PIE auditors and registered responsible persons Professional persons (i.e. CPAs and practice units) Remedial action Reprimand (private / public) Pecuniary penalty (per FR misconduct: not exceeding HK$10,000,000 or 3 times profit / loss, whichever is higher) Registration or recognition Imposition of a condition Suspension Revocation Prohibition from application Removal of name from the list of registered responsible persons Reprimand (private / public) Pecuniary penalty (per CPA misconduct: not exceeding HK$500,000) Registration Suspension Revocation Practising certificate Cancellation Non-issuance Investigation costs and expenses Note: In relation to a PIE engagement completed before 1 October 2019, the auditor or the reporting accountant concerned is to be regarded as a professional person and the AFRC can impose sanctions that are applicable to professional persons in such cases. Relevant Guidance Materials Sanctions Policy for PIE Auditors and Registered Responsible Persons Sanctions Policy for Professional Persons Guidelines for Exercising the Power to Impose a Pecuniary Penalty for PIE Auditors and Registered Responsible Persons Guidelines for Exercising the Power to Impose a Pecuniary Penalty for Professional Persons
Chiang & Co. for serious violations of fundamental auditor independence requirements
Chiang & Co. for serious violations of fundamental auditor independence requirements 22 May 2025 The Accounting and Financial Reporting Council ( AFRC ) has suspended Mr Chiang Sham Lam Anthony ( Chiang ) 1 and Anthony S. ... Ms Hester Leung, Head of Discipline, said, “The requirement of auditor independence is of fundamental importance and lies at the heart of every audit. Upholding auditor’s independence is essential to maintaining public trust in audits and the reliability of financial reporting.
Forms
Forms Registration Practice Units Non-Hong Kong PIE Auditors Inspection Inspection Investigation and Compliance Investigation and Compliance Registration Practice Units Non-Hong Kong PIE Auditors Inspection Inspection Investigation and Compliance Investigation and Compliance Registration Practice Units Proforma for Testimonial (Form PC-PT) [SAMPLE only] Letter of Consent from the Landlord / Leaseholder [SAMPLE only] Certification of Insurance by the Insurance Broker Registration Non-Hong Kong PIE Auditors Initial Application Renewal Application Change of Particulars Initial Application Initial Application Renewal Application Change of Particulars Form A – Information of the Overseas Entity Form B – Information of the Overseas Auditor Form B1 – Members of Board/Committee Declaration of Good Repute (Form B-GR) Form C – Information of the Overseas Entity Form D – Information of the Overseas Auditor Form D1 – Members of Board/Committee Declaration of Good Repute (Form D-GR) Notification Form of Change of Particulars – Overseas Auditors (Form NCP-ENG) Notification Form of Change of Particulars – Mainland China Auditors (Form NCP-CHI) (available in Chinese only) Inspection Notification Form of Change of Auditor Investigation and Compliance Complaints (pdf form) Whistleblowing (pdf form) Complaints (online form) Whistleblowing (online form)
AFRC holds Briefing on its 2022 Annual Inspection Report to urge Quality Control System Responsible Persons of registered PIE auditors to enhance audit quality
AFRC holds Briefing on its 2022 Annual Inspection Report to urge Quality Control System Responsible Persons of registered PIE auditors to enhance audit quality 27 September 2023 To urge quality control system responsible persons ( QCSRP s ) of the registered PIE auditors to duly discharge their responsibilities in enhancing audit quality, the Accounting and Financial Reporting Council ( AFRC ) held a briefing session on its 2022 Annual Inspection Report on 22 September 2023, which was attended by over 40 target participants. ... It also highlighted the 2023 inspection focus and our expectations on auditors. Ms Lai explained, “The AFRC consistently applies the regulatory principle of proportionality and risk-based inspection approach to drive high audit quality, including conducting specific scope inspections on PIE auditors and proactive monitoring on malpractice in the market. ... This will allow us to ensure the PIE auditors have paid immediate attention to the audit quality of their engagements.”