Companies Bill - Section 399 Offences relating to contents of auditor's report

The Companies Bill was passed in Legislative Council on 12 July 2012.

The details of the Companies Bill - Section 399 are as follows:

Offences relating to contents of auditor’s report

(1) Every person specified in subsection (2) commits an offence if the person knowingly or recklessly causes a statement required to be contained in an auditor’s report under section 398 (2)b or (3) to be omitted from the report.

(2) The persons are:

(a) if the auditor who prepares the auditor’s report is a natural person -

(i) the auditor; and

(ii) every employee and agent of the auditor who is eligible for appointment as auditor of the company;

(b) if the auditor who prepares the auditor’s report is a firm, every partner, employee and agent of the auditor who is eligible for appointment as auditor of the company; or

(c) if the auditor who prepares the auditor’s report is a body corporate, every officer, member, employee and agent of the auditor who is eligible for appointment as auditor of the company.

(3) A person who commits an offence under subsection (1) is liable to a fine of $150,000.

As some listed companies have been exposed to make false entries in books and records in recent years, there are voices from the community to strengthen the criminal liability for such irresponsible behaviour. Unfortunately, the Companies Bill which only applies to Hong Kong companies cannot regulate all listed companies because 75% of Hong Kong listed companies are non Hong Kong companies. Therefore, even the Bill has been passed, it still cannot solve the problem of false accounting effectively.

The Hong Kong Institute of CPAs pointed out that the Companies Bill exerted the following negative impacts on Hong Kong Business environment in its submission:

• It will lead to "defensive" auditing, which will increase costs and be disadvantageous to business in Hong Kong.
• As it will not be applicable to the bulk of listed companies, which comprises 75% (in value) of non-Hong Kong companies, it will result in unfairness and an uneven playing field in the Hong Kong market.
• It will create disparities between Hong Kong and non-Hong Kong companies that will affect the competitiveness of the former.
• In practice, it will place a disproportionate burden on small and medium-sized enterprises, for which costs and cash-flow are critical.

The above information was extracted from the website:

http://www.hkicpa.org.hk/en/communications/member-communications/clause399/
http://app1.hkicpa.org.hk/correspondence/ce/2012/06-22/ce-mail.php