Chairman of the Accounting and Financial Reporting Council Kelvin Wong (right) talks to Straight Talk presenter Eugene Chan on TVB, Feb 20, 2024. (PROVIDED TO CHINA DAILY)

Chairman of the Accounting and Financial Reporting Council Kelvin Wong is on the show this week. 

Wong reveals that preliminary findings in a council's recent survey shows that Hong Kong accounting staff attrition rate was close to 30 percent in 2023 "which is quite substantial". He says while the severe shortage of accounting staff is not limited to Hong Kong but is also affecting major markets around the world, the council will publish a policy paper to remind audit firms to "ensure that they focus on talent management, i.e. not only the staff attraction, recruitment, but how to develop them, so as to retain them and build their capacity".

Check out the full transcript of TVB’s Straight Talk host Dr Eugene Chan’s interview with Kelvin Wong:

Chan: Good evening! I'm Eugene Chan and welcome to Straight Talk. Our guest is the chairman of the Accounting and Financial Reporting Council, Dr Kelvin Wong. Dr Wong brings a wealth of experience and expertise to the table, serving as deputy managing director of COSCO Shipping Ports limited, along with being independent non-executive director of two listed companies in Hong Kong. He is also the chairman of the Corruption Advisory Committee of ICAC. With a career spanning various key positions in financial regulation and corporate governance, including his tenure as a director of the Securities and Futures Commission and chairman of the Hong Kong Institute of Directors, Dr Wong is uniquely positioned to provide insights into putting Hong Kong's financial standards to the test. Welcome, Kelvin!

Wong: Great to be here, Eugene.

Chan: We are very delighted to have you because, looking at your CV, you would be a good person to share with the viewers how Hong Kong has done in the past, especially in being what we call a world-renowned international financial center. Now you're the chairman of the AFRC standing for Accounting and Financial Reporting Council – a name that may not be very familiar to everybody. Can you tell the viewers briefly about the purpose and the scope of work that is under your remit?

Wong: Yes. The Accounting and Financial Reporting Council, the purpose of which is to ensure that financial reports prepared by listed companies and private companies are assured by the auditors. Auditors have to adopt the audit standards in order to ensure that the accounts are transparent, strictly in accordance to these standards, as well as comparable not only locally between companies and across different industries but then accounting financial reports are comparable on a global basis. Because Hong Kong is an international financial center, therefore in order to ensure that our financial reports are trustworthy, and transparent, it is very important to have an independent regulator ensuring that audit standards are of high quality.

Chan: So Kelvin, I understand the AFRC was formerly known as the Financial Reporting Council FRC until October 2019, when the Financial Reporting Council Amendment Ordinance took effect. Now you're like an independent regulator. What is the significance of this in our Hong Kong history? Why do we have to do that? Was there something that the FRC didn't do as well? Or why do we have to change this?

Wong: Now, probably there are two reasons for that. First one is being that on a global basis, we are seeing overseas financial centers including the US and the UK, they are already implementing a regulatory regime of which regulators are independent from the profession. That is very important, because that deviates from what we used to be regarding self-regulation by members or accounting professionals. That is important in order to earn the trust of the public regarding each and every decision made by the regulator. And then along that line, therefore, in 2009 Financial Reporting Council migrated to become an independent regulator for the accounting profession, namely that we not only investigate complaints and also financial irregularities, but also we impose enforcement actions as well as sanctions. Therefore, that will allow public interest to be protected by an independent regulator.

Chan: Right, Chairman sorry to ask you a very direct question. I mean, in Hong Kong professional bodies are always using the profession … sort of running our own work because they seem to know the best and of course with independent people from the community act as sort of advisors or being having the independent voice. So, when you said that in 2019, you just mentioned earlier, that the US and even other international cities, having an independent regulator, this factor that we've never had that has diminished or has it affected our status in the past at all?

Wong: Well, one cannot say that strictly, because I must admit that Hong Kong’s CPA regime under which they regulated their members with very good policy, as well as positions however, because they are membership firm, i.e. they maintain their membership and they have to ensure they thrive and grow the membership as well. So, therefore, inevitably, their members either they were former members of the council or whatsoever, may have some regulatory capture, i.e. they are sitting so close to the decisions of each and every complaint and regulatory decisions, to the extent that that may not be able to earn the trust of the complainant and the public. Therefore, having an independent regulator is the name of the game in order to ensure public trust and also investor protection. That is the name of the game.

Chan: So basically, Hong Kong is taking another step forward, to be even better amongst the rest of the world. So you just kind of mentioned this council oversees the audit quality, and I'm sure ensuring ethical standards of the profession. In your view, how crucial is this for Hong Kong, economic stability, and even international competitiveness?

Wong: Now we understand that Hong Kong is an international financial center; the economic development of Hong Kong is of utmost importance. Accounting standards and audit standards allow us to ensure the performance of each and every company is transparent and comparable to the extent that bankers are willing to lend their money to finance the growth of those companies at a certain level of risk that they anticipate based on the sets of accounts presented to them. So, therefore, you can imagine the importance of standards and also the assurance by their auditor, which are independent from the company, that is of utmost importance, without which I will say there will be no trust to the extent that there will be no capital flow into each and every company, the industries and then the economic development will be affected.

Chan: So, Chairman, when we were having a chat earlier, I was under the impression that financial reporting being, I mean, very, very good, is mainly for listed companies. But you also mentioned, even private companies, especially even the small and medium firms. So, how would you elaborate the importance of maintaining a public trust in financial accounting for Hong Kong as a city?

Wong: This is very important, closest to the heart of Hong Kong. When we are working out how to ensure that our economic vitality will be even stronger going forward. As I've told you, without a standard set of accounts, companies, even for companies themselves, don't know how to plan ahead regarding their growth and they don't know the boundary regarding the resources facing the company. Therefore, they may not be able to make very good decisions which is to the benefit of their shareholders in general. They may not be able to strive for a strategy which can not only deal with the risks that they are seeing, but also the opportunity. After all, financial accounts or financial accounting is so important to the company first and foremost that company's management and shareholders will benefit from it, therefore the integrity of ensuring transparent, high quality financial reporting is the name of the game for all walks of life, in particular for the small to medium size enterprises. In Hong Kong, we have more than 1.4 million SMEs. They are actually the backbone for Hong Kong regarding economic development.

Chan: Right, Chairman, you have repeatedly mentioned the word transparency, trust and all that. I mean, how, if the viewers were going to ask you, how has Hong Kong's accounting standards or financial reporting been, like, especially benchmarking with the world? In your opinion, how are we doing so far?

Wong: Now based on our past three years experience of inspecting listed companies engagement among audit firms, 55 percent of our inspections are either good or with limited improvement that means they are good, they are satisfactory by and large, whereas compared to overseas such as the UK, their corresponding ratings is about 77 percent. Now firstly, of course, we are still a bit lagging behind of the UK level. However, the UK has been regulating the market for more than 11 years. So, back to 11 years ago in for the UKFRC their level of satisfactory inspection was only 44 percent whereas for Hong Kong, only for three years, we achieved 55 percent. While we adopt a very, very similar approach of inspection compared to any overseas regulators, so therefore, our results are comparable. But then we are optimistic and we are confident that because of the learning curve, we will be seeing further improvement regarding the audit quality among the professions in Hong Kong.

Chan: Alright, let's take a break now. And viewers, stay tuned. We will be right back.

Chairman of the Accounting and Financial Reporting Council Kelvin Wong attends the Straight Talk show on TVB, Feb 20, 2024. (PROVIDED TO CHINA DAILY)

Chan: Welcome back! Thank you, Kelvin, for talking to us about the relevance of a world standard financial reporting system. So, in the first half of the show, you have repeatedly talked about the importance of transparency, trust, and confidence, of our system, so that Hong Kong can do well as an international financial center. I would like to ask you a little bit more now. With the world evolving all the time, how do you ensure the Hong Kong standards remain competitive and adaptable to the evolving standards of the world?

Wong: Firstly, I would like to emphasize that Hong Kong has been adopting the IFRS, which is the global standards already. Therefore, we have a very, very high starting point. But then, secondly, for AFRC, through our various functions, including our registration and licensing, but registering PIE audit firms and also CPA practicing, we will be focusing very much on their fit and proper test, in particular whether they are competent and whether they are ready for audits engagement, which has high public interest. And the higher the public interest regarding the engagement, then the more stringent the test that we will be focusing on regarding their fit and proper. So, that is one. Of course, continuous professional training and development is also an important tool, in order to prompt current practitioners into updating themselves and upscaling the necessary skill sets regarding different industries and also different accounting standards. That is important. But then, secondly, we remain optimistic that through our inspection function, we are able to inspect samples of their finished audit work on an annual basis, in order to test and ensure that have adopted audit standards on a consistent basis, upholding audit quality.

Chan: Right. Chairman, you mentioned the world “pubic interest”, I am sure the viewers will say if I am going to invest in a company, either public or private, we need that to ensure money is put in the right place. So, how does the council … do you work with other regulatory bodies in Hong Kong to strengthen this side of financial regulations?

Wong: We have been working very closely with local regulators, the Chinese mainland, and also from the overseas. For example, we have been working very closely with the SFC,

ICAC, and also the Hong Kong Stock Exchange, with a view to ensuring that there will be no room … or no stone to be unturned. We have to work together in order to seamlessly to protect public interest because we are embedded with different law and also ordinance. Our powers are quite different, even though we are in the same financial ecology.

Chan: Right. When we talk about accounting profession, I am sure some of the viewers might have been taking notice of what happened in the last few years, that we used to have a mutual recognition between the US and Hong Kong accounting professions, namely the Hong Kong ICPA and the AICPA. 

Wong: There could be many reasons for that, let’s not dwell on that. 

Chan: How would you, as a regulator, say this issue will put Hong Kong, the profession, in terms of standards, in the world’s eyes?

Wong: As I have told you, because we are adopting the very similar standards comparing to IFRS, our standards has been more or less the same to almost 148 countries in the world. Therefore our standards are the global standards. So, that's the first point. And the second point is I believe that the mutual recognition between overseas jurisdictions, the standard setters, as well as the local standard settings in Hong Kong, which is the Hong Kong ICPA, it is a … firstly, it is a decision by Hong Kong ICPA themselves, but I believe that there are mutual benefits regarding such a mutual recognition because that may allow the respective members to be able to participate into various businesses. So, it is a mutual benefit as I see it. 

Chan: Right. Also if the viewers have been watching our show, we have been talking about all this cryptocurrency, even blockchain technology, how has that impacted on financial reporting, from your regulators’ point of view?

Wong: Now we are looking into the emerging industry, including for example, the crypto assets, crypto companies. Of course, our first and foremost concern is whether their sets of accounts are prepared in accordance to the financial standards or the accounting standards, and are those financial reports being audited and assured properly by the auditors. So, whether the auditors, they are capable, they have the necessary skill sets already, in making sure that they can audit such sets of accounts to the satisfaction, in order to discharge their duty. This is our focus for the time being. Now without saying too much, of course we believe that it is not for each and every audit firm to be engaging in those emerging industry, of which we believe that the public interest elements is even higher. 

Chan: I am also part of the professional family, and we know that standards setting is such an important part of maintaining and making our profession continue to thrive. So, how do you ensure transparency and accountability for financial reporting practices within Hong Kong, from your point of view?
Wong: Of course, the transparency, how to ensure that, I would say it has to be starting from the top or i.e. tone at the top is important. Not only the tone at the top from or among listed companies, in which their chairman and CEO, they have a pivotal role to play in order to set the tone to ensure that the preparation of their accounts are robust, and to the advantage of their shareholders. That is important, but then that is not enough. Financial report has to be audited and assured by external auditors. And then for the auditing profession for audit firms, they have to ensure that tone set at the top as well, i.e. managing partners of audit firms, they have to ensure that engagement partner and engagement team, when there performing their audit. They have to strictly adhere to audit standards, and then whenever there are any issues, they should communicate it to the audit committee, as well as the chair of the board. 

Straight Talk presenter Eugene Chan (left) interviews Chairman of the Accounting and Financial Reporting Council Kelvin Wong on TVB, Feb 20, 2024. (PROVIDED TO CHINA DAILY)

Chan: Right. Since the AFRC comes into effect in 2019, are there any initiatives that have been put in to enhance the quality of audits and even more accurate financial statements?

Wong: Yes. Firstly, regarding our various statutory functions, we have been publishing our findings on an annual basis through an annual report. That may allow not only the auditing profession, but also listed company to understand issues that were found, the concerns that we have, and also the recommendations that we put forward to listed companies, their audit committee, as well as auditors and audit profession. That is important. And then, secondly, we have been focusing a lot of our efforts in producing guidelines, audit focus notes, alerting and ensuring auditors when they are preparing their full year audit, they have to focus on areas that we believe are of higher risk, that is important. And we also communicate with other stakeholders, including listed companies, independent non-executive directors, and even company secretaries and internal auditor because they all play pivotal role in ensuring the quality of financial reporting.

Chan: Right. Chairman, I mean when you take over some of the functions from the Hong Kong ICPA, I am sure you face challenges because it takes time to be able to have a full grasp of this picture. And I am sure you also have to deal with the challenges faced by the accounting profession. We got some very good friends who have been coming to this Straight Talk, and they have been telling us that they are facing issues like manpower, they are facing the new development of the AI work, in terms of … sort of almost that affects … but making the practices different. How does your council being able to be more sympathetic and be understanding to this? How would you support the profession to continue to grow because you mentioned the accounting profession having a good set of financial reporting is such a pivotal thing for Hong Kong as an international financial center, what would you do to help them?

Wong: Now, firstly, in around July last year, we have conducted a survey, and we are yet to publish our results, probably in the next 2-3 months’ time, we will be publishing our results. However, I may share with you regarding our preliminary findings. Firstly, regarding the talent shortage, it was quite critical last year, according to the input from various firms that we asked. For associates and senior associates, they are a very important position, playing a pivotal part regarding audit. The staff attrition rate was close to 30 percent, which is quite substantial.

Chan: Yes.

Wong: Yes, we admit that we have to face the music, not only for Hong Kong, but for global financial markets, they are in severe shortage of accounting staff. So, that is the first phenomenon. And then what we have been doing is we have published yet another policy paper, reminding audit firms to ensure that they focus on talent management, i.e. not only the staff attraction, recruitment, but how to develop them, so as to retain them and build their capacity. That is important as well. But then along the line, we are focusing on some areas and some new initiatives, in order to ensure that we can have a stable supply of talents for accounting profession.

Chan: Right. Thank you, Chairman Dr Wong, for showing us how crucial maintaining Hong Kong's high financial standard is to cement our position as a global financial hub. Henry Ford, founder of Ford Motor Company, said: “The only true test of values, either of men or of things, is that of their ability to make the world a better place in which to live.” Have a good evening and see you next week!