Overview
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Rising business opportunities and the use of international standard accounting practices have attracted the big international accounting firms to have a presence in Hong Kong. Most of them have set up their regional headquarters here.
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Smaller-scale local accounting firms will find it increasingly challenging in competing with the accounting giants. With companies increasingly globally focused, even big international accounting firms have to further expand their scale of operations in line with those of their clients.
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After China's WTO accession, foreign nationals who have passed China's National Accounting Examination are allowed to form partnerships or incorporated accounting firms on the mainland. In addition to the Chinese mainland's WTO liberalisation, Hong Kong's accounting sector and professionals also benefit from the CEPA agreement signed with the mainland.
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In December 2007, the Hong Kong Institute of Certified Public Accountants (HKICPA) signed joint declarations with the China Accounting Standards Committee and the Chinese Auditing Standards Board in relation to the financial reporting and auditing standards in Hong Kong and the Chinese mainland.
Industry Data
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June 2007
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No. of accounting, auditing and bookkeeping firms
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3,919
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Employment
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24,714
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Source: Quarterly Report of Employment & Vacancies Statistics, Census & Statistics Department
Range of Services
Major services provided by certified public accounting (CPA) firms are statutory audit services, tax advisory, company listing, corporate finance, company secretarial, liquidation and due diligence services. Although audit work is still a major source of income for the accounting profession, CPA firms also provide a full range of business advisory services to their clients such as financial planning and corporate management.
Non-CPA firms offer services like bookkeeping, general accounting services, year-end financial reporting, tax filing and company secretarial work.
Service Providers
The industry is dominated by a few international firms. The world's "Big Four" accounting firms hold a dominant share of the market in terms of professional fees earned. They provide audit services for the vast majority of Hong Kong's listed companies. Smaller accounting firms mainly serve the non-listed local companies.
Accountants have organised themselves into professional societies. Most of the accounting professionals in Hong Kong are members of the Hong Kong Institute of Certified Public Accountants (HKICPA) (formerly known as Hong Kong Society of Accountants), a self-regulating body governing the professional conduct of accounting professionals in Hong Kong. According to HKICPA, there were more than 26,800 practising CPAs in Hong Kong in 2006.
Exports
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Accounting, auditing and bookkeeping
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2006
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Export of accounting, auditing, book-keeping and tax consulting services
(US$ mn)
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126
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Contribution to total services exports (%)
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0.2
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Source: Report on Hong Kong Trade in Services Statistics for 2006, Census & Statistics Department
Hong Kong's exports of accounting services amounted to US$ 126 million in 2006. The Chinese mainland is the biggest export market for Hong Kong's accounting services. Major export services include: statutory audit services; investment-related advisory services (e.g. due diligence); tax advisory; computer assurance and corporate services.
The clients requiring accounting services on the mainland can be broadly divided into four types, namely multinational corporations, Hong Kong companies which have invested or intend to invest on the mainland, Hong Kong-listed mainland enterprises and mainland enterprises expanding overseas.
Multinationals
Sino-foreign joint-venture enterprises
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Statutory audit is performed for many of the foreign joint-venture companies in China to meet the reporting requirements of their foreign partners.
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Investment-related advisory services are also demanded.
Hong Kong-listed Mainland enterprises
Mainland enterprises expanding overseas
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More mainland enterprises are expanding overseas. Many of them first establish their presence in Hong Kong as a springboard to the international market.
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Advice on setting up companies overseas (including Hong Kong) and arranging overseas credit facilities/listings services is demanded.
Industry Development & Market Outlook
China's World Trade Organisation (WTO) Accession
In its WTO accession, China made substantial concessions on foreign investment in the services economy. Market access commitments in relation to the accounting sector are as follows:
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Partnerships or incorporated accounting firms are allowed for CPA firms licensed by Chinese authorities.
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Foreign accounting firms can affiliate with their Chinese counterparts and enter into contractual agreements with their affiliated firms in other WTO members.
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Foreigners who have passed the Chinese national CPA examination will receive national treatment (i.e. they can form partnerships or incorporated accounting firms).
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The Ministry of Finance (MOF) introduced the "Measures on the Administration of Accounting Qualification" in March 2005. People intending to work in the accounting industry need to obtain the required qualification before being allowed to provide accounting-related services on the mainland.
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In addition, the MOF introduced the "Measures on the Registration of Certified Accountants", stipulating that accountants who have passed the Chinese national CPA examination and fulfil certain requirements in order to register as certified accountants on the mainland.
Closer Economic Partnership Arrangement between Hong Kong and the Mainland (CEPA)
In addition to the mainland's WTO liberalisation, Hong Kong's accounting sector and professionals benefit from the CEPA agreement signed with the mainland. In general, CEPA does not include significant market liberalisation measures for Hong Kong's accounting firms and professionals. For smaller Hong Kong accounting firms, the main option for them to serve the mainland market is via the Temporary Audit Business Permit. Under CEPA, the validity period of the Temporary Business Permit is extended to two years. This helps reduce the administrative burden for Hong Kong accounting firms compared with the requirements which otherwise apply to non-CEPA beneficiaries.
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Current Scope of Access
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Access for Hong Kong under CEPA
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- Can apply for Temporary Audit Business Permit to conduct auditing services on the mainland. The permit is to be renewed on a half-yearly basis.
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- The validity period of the Temporary Business Permit is two years.
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Exemption of Professional Examination Papers
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In August 2004, the Financial Services and Treasury Bureau of Hong Kong and the MOF of the Chinese mainland agreed on an arrangement for the exemption of professional examination papers in the accounting sector.
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The agreement stipulated that persons who have passed the mainland's CPA Uniform Examination will be exempted from two subjects of the HKICPA Qualification Programme (QP) (i.e. "Financial Management" and "Auditing and Information Management"). On the other hand, persons who have passed the HKICPA QP will be exempted from two subjects of the mainland's CPA Uniform Examination (i.e. "Financial Cost Management" and "Auditing").
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The mutual exemption of equivalent examination papers will facilitate accountants in Hong Kong and the Chinese mainland to acquire the professional qualification in both places, thus enhancing the cooperation of the accounting sectors in Hong Kong and the mainland.
Mainland Standards Convergence
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After the signing of the CEPA, there have been an increasing number of CPA firms / international affiliates and their clients entering the Mainland market. In December 2007, the HKICPA signed joint declarations with the China Accounting Standards Committee and the Chinese Auditing Standards Board in relation to the financial reporting and auditing standards in Hong Kong and the Chinese mainland.
