Straight Talk presenter Eugene Chan (left) interviews Loretta Fong on the show on March 28, 2023. (PROVIDED TO CHINA DAILY)

Loretta Fong, president of the Hong Kong Institute of Certified Public Accountants, is on the show this week.

Fong talks about how the accounting profession is improving itself by moving to a different regime within Hong Kong, in terms of its disciplinary framework, and how much more work can be done to allow better cooperation between those in the Chinese mainland and Hong Kong in order to facilitate our country's growth.

Check out the full transcript of TVB’s Straight Talk host Dr Eugene Chan’s interview with Loretta Fong.

Chan: Good evening. This is Straight Talk with Eugene Chan. Tonight, we are joined by Loretta Fong, the president of the Hong Kong Institute of Certified Public Accountants. She has been practicing as an insurance partner with PricewaterhouseCoopers, and also serves as the treasurer of the Hong Kong Polytechnic University Council. Tonight, we are continuing with last week theme of the two sessions in Beijing and what opportunities there are for Hong Kong businesses. Welcome, Loretta! 

Fong: Thank you, Eugene!

Chan: Thank you for coming to the show. And you, being the fourth female president of the Hong Kong ICPA, being able to lead the whole accounting profession, won't be an easy job, especially with some recent changes. I know that the Hong Kong ICPA is the only body authorized to register certified public accountants in Hong Kong. But recently, since October last year, the AFRC – Accounting and Financial Reporting Council – had taken over some of the statutory functions. Maybe you can share with the viewers, how you are separating your jobs at the moment?

Fong: Thank you, Eugene. This is a great question. I need to say that is a big change for the HKICPA, and also for the profession. However, the change is good. Why am I saying this? It’s because historically HKICPA has this disciplinary power for disciplining the certified accountants. And normally you will find that this is a conflicting role as compared to what we normally do, which is to serve our members. So, with the fact that AFRC has taken over the disciplinary power over CPAs. This provides HKICPA with greater opportunities to really think about our strategy, how we are going to develop our members, and how to serve our community better. So, I think this is a good change.

Chan: President, some say that with the loss of function by the HKICPA, you have fewer members, and actually people who will leave the HKICPA, have you seen that?

Fong: We have been monitoring our membership on a regular basis. And in fact, as of last year, there was a time when the members are supposed to renew their membership, I realized that there had not been any significant drop off our members, our drop in members, we probably would lost around like 1 percent to 2 percent of our members on an normalized basis. And I would consider as normal.

Chan: Okay, so maybe further on the show, you can tell us how HKICPA is going to lead the profession in the upcoming challenges for Hong Kong and also the world especially, you know, everything is getting to normalize after the COVID. Just ... I mean going back to the title of the show, we always want to know how Hong Kong businesses can benefit from the recent Beijing two sessions. But before we get to that, maybe you can, being an accountant, you'll be able to know the books and accounts of all the companies. So, how are Hong Kong businesses doing for the last few years?

Fong: It's been very challenging, I need to say, well, the COVID had affected us for almost three years and it’s time that everything we would like to resume to normal. The accounting profession, you may know that in the past few years, I think there are a few things that are affecting it. One is talent drainage, and which is, you know, we do have fewer people who wish to join the accounting profession, even accountant, even people with accounting major may not necessarily join the profession, because of these things, talking about you know, a lot of overtime, the starting salary is low, etc. That is the first thing. And secondly, I mean for the business, I believe that, you know, this regulatory change. Some of the members are actually expecting tighter control over the disciplinary function of all these CPAs, realizing that it's actually getting very hard for our profession to grow. And of course, the audit fee has also been subject to a bit of a challenge. And in fact, there is an AFRC report that was only published last Friday. With inflation adjusted basis, audit fee 2020 year compared to 2021, that has been dropped by 20 percent, that means… 

Chan: Really?

Fong: … that is actually very significant.

Chan: Right. So, president, you have basically said that the profession itself, apart from having the COVID restriction people can travel. So, recently, you know, we have lifted all the restrictions and travelling has become normal again between Hong Kong and the mainland, do you see that being able to help the profession into this tough time?

Fong: Yes, indeed, I think it's important for us to help the profession and we have been reestablishing a lot of connections with China regulatory bodies like CICPA, Guangzhou ICPA, and also Ministry of Finance, etc. We have been trying very best to have meetings with them, and at the same time, we are … one of the key things that we want to do is to re-think about the current mutual examination paper exemption between HKICPA and CICPA.

Chan: Right, before we get into that qualification part, I want to ask you, it sounds quite conflicting. When you say your fees have dropped by 20 percent, which is quite significant for professional fees. I mean, being a professional myself, I mean, your margins can't be 20 percent. And having a talent shortage, that doesn't sound right, because your fee should go up because you don't have enough manpower. Why are the fees dropping?

Fong: It is a very good question, we would … I absolutely agree with you that these two things are actually conflicting, and with the fact that we have talent drainage, which we should actually increase our fee. However, the accounting profession is also very competitive. While we are having the Big Four, as one of the big players, we also have some smaller accounting firms, whereby their overhead could be a little bit lower. And now that the audit committee when they were assessing the selection of auditors, somehow audit fee came out as the third item that they would consider while they were choosing the auditors. So, to some extent that if you're ... if a company that may not have a lot of international establishment, and which is more local-based, they probably will be thinking … and a lot, of course, not a lot of complex accounting issues, they probably will be selecting some of the smaller firms. And we can see that that is actually the trend.

Chan: Going back to your privileged information, because you'll be looking at accounts of all businesses, the last few years has been tough. But do you expect the business to come to bounce back quickly? I mean, what type of businesses do you see would have an advantage of bouncing back faster than those who are lagging behind?

Fong: Right, some of the sectors could be quite obvious that they're going to bounce back more than the others. For example, the retail and consumer sector, definitely. And also, anything related to travel, like, you know, airport type of industry, that sort of definitely we are expecting a lot of big rebound, technology is probably receiving quite a bit of setback. But we are hoping that with the latest two sessions, as you mentioned, by that, I think the expectation is that this is going to resume gradually.

Chan: Right, from your perspective, what are the major challenges businesses will face, post the pandemic?

Fong: You mean here in Hong Kong? 

Chan: Yes.

Fong: I believe that a lot of people are actually trying to make a comparison between Hong Kong and Singapore. However, I need to say that Hong Kong is very special; it's a very special city. It's been loved by a lot of people all over the world. And I think the biggest challenge that here in Hong Kong, we need to tell the world that we are still in one of the most charming cities in the world. It’s an international finance center. And with the support of the Beijing government, it is expected that it's going to be an innovative and technology hub, there is just more to come for Hong Kong,

Chan: Right. So, when do you expect all the businesses to bounce back to sort of pre-epidemic level, from your point of view?

Fong: You know, I do not have a crystal ball. But probably two, three years would be a reasonable expectation.

Chan: Right. So, you just mentioned that we, Hong Kong, with a strong support from the central government, we will be able to do well, especially, amidst the 14th Five-year National Plan … National Five-year Plan. What are the opportunities that you can see from the business point of view that will arise up from the two sessions?

Fong: I guess there are a few things that we may actually note from the two sessions. One of the things is about this GDP growth, it's been set to be approximately 5 percent. You may remember that in the previous years, there’s no GDP growth target. But now that there is one, meaning that the government is really looking into the overall growth of the country, and trying really hard to make sure that all the sectors, both private and public, are making effort towards this target. And especially when you see that President Xi had mentioned that for the private businesses, they should be eliminating their worries, and lay down burdens in their business development. And I think this is a very positive sign. If you recall, there had been a lot of regulatory changes for a few of the most vibrant sectors in China, including like TMT, including, like healthcare, and including like education. I think these sectors are expected to proliferate after the two sessions. And secondly, you will see that there is a reform of the financial regulatory regimes. And with this whole restructuring of this financial regulatory functions, the expectation is that the real estate industry is expected to benefit from it. You may recall that there are a number of real estate developers have suffered a lot due to financial constraints and financial burden. But with this regulation, I believe that their financial risks are expected to be a little bit elevated.

Chan: Right, president, let's go to the break now. And viewers do stay with us. We'll be right back.

Loretta Fong, president of the Hong Kong Institute of Certified Public Accountants, attends the Straight Talk show on TVB on March 28, 2023. (PROVIDED TO CHINA DAILY)

Chan: Thank you for staying with us. We have been talking with Loretta Fong, the president of the Hong Kong Institute of Certified Public Accountants, about how businesses are doing in Hong Kong, and what opportunities are there for them arising from the two sessions in Beijing. 

So, President, on the first half, you mentioned at the end so things are looking brighter for the Hong Kong businesses because there will be a predicted GDP growth of over 5 percent, and a lot of regulatory reform, and things are starting to get back to normal. But we are also faced with a talent shortage, as you mentioned, and also a reduction in fees that you mentioned earlier. Hopefully you guys will do better in coming months. With the emphasis of the GBA area that we talk about all the time for the Hong Kong development plan, do you think Hong Kong as an international financial global hub, can we facilitate all these cross-border businesses? 

Fong: Hong Kong definitely serves this role, as mentioned by our CE. Hong Kong is a super connector, it has always been. And its position actually cannot be replaced, I would say. And you can see that we have a very vibrant Hong Kong capital market, which is something actually very essential for attracting all sorts of investors to come to Hong Kong. And also all sorts of enterprises to be here in Hong Kong to establish their base here. I believe that with some more incentives for coming to Hong Kong, definitely I think that Hong Kong should be the area whereby a lot of people would love to come.

Chan: Right. President, in the first half you mentioned briefly about the recognition of our accounting professionals in the mainland that will certainly facilitate businesses for Hong Kong or international businesses going into the mainland to develop. So, have you been working on … I know for the last 20 years they have been continuing working on to open up the doors for professionals to work in the mainland. So, have all the doors been opened? Or are you still working on some of the very tough doors?

Fong: Say that it started with CEPA.

Chan: Right.

Fong: That they are trying to get some sort of mutual recognition between Hong Kong, HKICPA and CICPA. It is not easy, the journey is not easy, but I need to say that HKICPA is the one that was actually getting the most number of exempted papers, in order to get a CICPA as compared to the other professional bodies. So, currently if an HKICPA, he or she is going to get a CICPA, currently there are two papers that they need to sit. One is tax, the other is law, for obvious reasons. And also there is a uniform examination. And then for CICPA people to come to Hong Kong to get an HKICPA, basically they need to take a tax paper, and also what we call a capstone, which is a final exam. While we couldn’t find a lot of difficulties for the HKICPA to get qualifications to get to here in Hong Kong because our passing rates are normally quite high, it’s around like … for the final exam, it is as high as like 60 percent, 70 percent. But for Hong Kong people to get into China is actually quite difficult. Why I'm saying that is because I talked about this tax and also law examination paper, the passing rate is single digit.

Chan: Single digit?

Fong: Single digit for Hong Kong accountants. So, it is also done in Chinese, and it needs to be typed up as well. So, you can imagine the kind of difficulty for HKICPA to get into China is indeed quite difficult for them. 

Chan: So, will this be one of the HKICPA’s role to help, having tuition classes or special classes for our accountants, to make sure they pass at least a double digit passing rate? I mean single digit is definitely very low.

Fong: It is very low. So, we have been trying hard, but I need to say that on the other hand, I believe that it needs to be the discussions between the two governments, as to if there is any possibilities of allowing more exemptions or easier ways in order for the HKICPA to get a CICPA.

Chan: So, president, recently I also read that there are reports saying that the leading accounting firms, such a Big Four accounting firms that we mentioned so far, are now less of a choice for the SOE, state-owned enterprises. So, has the industry actually seen that? Or purely just a hearsay issue?

Fong: It is very timely question. First of all, I need to say that if we are talking about the audits for the state-owned enterprises, because it is a mandatory rotation, and every time if there is a contract, it is five years. So, we haven’t … unless their contract actually comes to an end, somehow the change may not be immediate.

Chan: Right.

Fong; For certain of the consulting projects, for example like advisory type of projects, there are questions being raised by the counterparty. But at the same time we realize that a lot of times when we are talking about this type of advisory projects, potentially there could be more than one contractor. For example, PwC, and then there could be an engineering firm, and there could be some local advisory firms as well. How that contract is being structured could also be critical in order to make sure that the Big Four can still participate in the consulting projects.

Chan: I think for Hong Kong’s people’s point of view, I mean hopefully not even the Big Four, even more accounting firms can be chartered by the state-owned enterprises or even mainland firms. But this is a quite interesting comment because Hong Kong professionals are always seen to be having the international perspective, being able to recognize, it is interesting that the state-owned enterprises favor the Hong Kong professional firms less, especially we are getting closer with the (Guangdong-Hong Kong-Macao) Greater Bay Area area. Why is that? Is it because of the fee issue?

Fong: A lot of times you will see that if there is a change in accounting firm, there is always a fee … almost always a fee reduction. I do not believe it is actually a particular fee issue. A lot have been talking about the information security, but I also need to say that all the Big Four firms would have very good policies and procedures to make sure that there is actually no leakage, in terms of information out of China. For state-owned enterprises, whereby they have a lot of international establishments, they have like overseas subsidiaries, or maybe they are listed in Hong Kong and some other countries. Use of Big Four firms may somehow be, I believe that, would be very beneficial and also increase the confidence of the investors. 

Chan: Right. President, last week we had Kennedy Wong, the Hong Kong Deputy to the National People’s Congress here last week. And he was saying that Beijing’s support for the consolidation of Hong Kong’s status as an international financial shipping and trade hub, he said he keeps hearing the messages Hong Kong will remain international. Do you agree? And how do you see the accounting profession can help to maintain that?

Fong: I absolutely agree with Dr Wong’s view. Hong Kong would remain international, and that is also important. Ten years ago, you might have probably thought about comparison between Hong Kong and Shanghai. And now you would see that they are comparing Hong Kong and Singapore, meaning that Hong Kong’s international status is becoming more and more important in the eyes of China. And Hong Kong is a lovely place, I can see that a lot of investors remember previously we were talking about these COVID restrictions, I've heard some investors tell me that if Hong Kong uplifts all those restrictions, I would come immediately. This is how lovely Hong Kong is as compared to Singapore. And Hong Kong has always had this international finance center, we have this … we have been renowned as an international finance center. So, and with also the fact that we have been very active developing the green finance over the past few years, and that is becoming increasingly more important. And I will believe that it is important that Hong Kong would continue to serve this role.

Chan: Right. President, earlier you mentioned about the exemptions of papers so that … I mean so that more Hong Kong certified public accountants can work in mainland and help out businesses or international businesses to work with our country. So, being having a lot of secretaries and even the Chief Executive do watch this show, and now you being the president, the leader of the profession, how would you want the government to help, in terms of logistically, what else can the government do to help the profession thereby Hong Kong, to be really embarking on big ship of the mainland at full speed heading forward again?

Fong: Right. We have continuous communication with the FSTB, Financial Services and the Treasury Bureau, and they also recognize that it is actually important for the Hong Kong accountants to assist in the China national development. And as a comparison, maybe just give you some figures. HKICPA we have around like 47,000 of us. And we have a population of around 7.8 million … 7.23 million. But in the mainland, CICPA, there is a little short of 300,000, for a population of 1.4 billion. So, you can see that in Hong Kong, we probably have like 30 more times of accountants as compared to China.

Chan: So, there's a huge market for Hong Kong?

Fong: There is a huge market for Hong Kong CPA.

Chan: But one question I am going to ask you very briefly is will people be worried that we are too dependent on the mainland market? The reason why I am asking that is we are now having more ties with the Middle East. You see our CE and also some of our secretaries going to visit them. How are you … will you move to that directions to making sure our accountants also have that market?

Fong: This is for sure a market that we are exploring right now. At the moment, the Middle East is very multicultural, and we can see that it is also a very international center. And I believe that for the Hong Kong accountants, this is definitely one of the ways in order to proliferate, and also assist companies over there to come to Hong Kong.

Chan: Right. President, thank you very much. And thank you for giving us a first-hand update of how businesses in Hong Kong are doing, and how and when they line up with the national policy, they can take advantage of both the GBA and Belt and Road initiative. This is certainly a path Hong Kong businesses can consider. Have a good week and goodnight!