Financial Reporting Standards Committee
Summary of the 243rd meeting of the Financial Reporting Standards Committee is now available.
Hong Kong Insurance Implementation Support Group
The Hong Kong Insurance Implementation Support Group’s 27 June meeting summary is now available.
Meeting with delegation from the International Ethics Standards Board for Accountants
On 16 July, the Institute hosted a series of outreach meetings with representatives from the International Ethics Standards Board for Accountants (IESBA).
Representatives from the Institute’s Ethics, Small and Medium Practitioners (SMPs), and Professional Accountants in Business Committees and the investor community exchanged views on public interest topics, including the levels of independence between audit and non-assurance services, and professional skepticism applied by accountants and auditors. The IESBA Revised and Restructured Code, its future strategy and work plan were also discussed.
Invitations to comment
The Institute is seeking comments on:
- International Federation of Accountants’ (IFAC) International Auditing and Assurance Standards Board (IAASB) Exposure Draft Proposed International Standard on Auditing (ISA) 315 (Revised), Identifying and Assessing the Risks of Material Misstatement and Proposed Consequential and Conforming Amendments to Other ISAs by 2 October 2018.
- International Accounting Standards Board (IASB) Discussion Paper DP/2018/1 Financial Instruments with Characteristics of Equity by 9 November 2018.
Institute’s submitted comments
The Institute commented on the IESBA Discussion Paper Proposed Strategy and Work Plan 2019-2023 and the European Commission’s Fitness Check on the EU Framework for Public Reporting by Companies.
- July IASB Update.
- Webcasts on the IASB Discussion Paper Financial Instruments with Characteristics of Equity.
- Webcast on IFRS 9 Financial Instruments.
- IFRS 17 Insurance Contracts educational materials on reinsurance contracts held.
Professional accountants in business
The board’s role in promoting an ethical culture
The article entitled The board’s role in promoting an ethical culture examines how boards can encourage ethical behaviour throughout a company by prioritizing corporate culture, watching for red flags, and setting clear expectations. Emphasis is placed on the importance of ethics and best organizational culture which may drive higher average return on assets, as well as the board’s involvement in promoting an ethical culture.
The article also provides 10 recommendations that may drive organizational culture.
Small and medium practitioners
IFAC updated practical support and guidance for small business audits
SMPs may require practical support when implementing ISAs in audits of small- and medium-sized entities (SMEs). IFAC has updated the Guide to Using ISAs in the Audits of SMEs, Fourth Edition to help SMPs efficiently and proportionally apply ISAs on SME audits.
This guide reflects recent changes to the ISAs including IAASB projects on: auditor reporting; disclosures; the auditor’s responsibilities relating to other information; and using the work of internal auditors.
Volume 1 of the guide covers the fundamental concepts of a risk-based audit in conformance with ISAs, while Volume 2 contains practical guidance on performing SME audits, including two illustrative case studies – an SME audit and a micro-entity audit. SMPs may use the guide for training purposes and as the basis for firm manuals.
IFAC has also updated the Companion Manual to provide practical “best use” suggestions for the Guide.
SFC consults on amendments to anti-money laundering and counter-terrorist financing guidelines
On 5 July, Securities and Futures Commission (SFC) launched a consultation on proposals to amend the Guideline on Anti-Money Laundering and Counter-Terrorist Financing to keep it in line with international anti-money laundering and counter-financing of terrorism standards and make it more useful and relevant.
SFC proposes to expand the types of politically exposed persons to include customers who have been entrusted with a prominent function by an international organization. It also proposes to streamline the identification and verification processes for on-boarding customers to allow flexibility for licensed corporations to adopt reasonable risk-based measures and determine the extent to which each individual’s identification information would need to be verified.
Licensed corporations may use appropriate technology for non-face-to-face account opening if they can ensure and demonstrate that there are adequate safeguards against impersonation risk.
Amendments to takeovers rules
On 13 July, the SFC released consultation conclusions on proposed amendments to the Codes on Takeovers and Mergers and Share Buy-backs (Codes) which are applied with immediate effect.
Measures to enhance investor protection include empowering the Takeovers Panel to require compensation be paid to shareholders who have suffered as a result of a breach of the Codes and increasing the threshold for independent shareholder approval of a whitewash waiver to 75 percent. Other changes include amendments to clarify the power of the Takeovers Executive, the Takeovers Panel and the Takeovers Appeal Committee to issue compliance rulings and that persons dealing with them must do so in an open and cooperative manner.
HKEX defers corporate weighted voting rights beneficiary consultation
On 25 July, Hong Kong Exchanges and Clearing (HKEX) announced that it would not launch a consultation on a proposal to allow corporate entities as weighted voting rights (WVR) beneficiaries in late July as initially planned.
Given that the current WVR regime has only recently been put in place, HKEX believes that it should deliberate further the extended WVR regime and should continue to engage with relevant stakeholders in order to develop a broader consensus on the subject matter.
HKEX consultation conclusion on Corporate Governance Code and Guidance for Boards and Directors
The HKEX published consultation conclusions on its Corporate Governance Code and related Listing Rules in relation to board procedures and diversity, roles of independent non-executive directors (INEDs); and transparency on dividend policy on 27 July. The HKEX also published the Guidance for Boards and Directors on the same day.
Amendments to the Code and related Listing Rules had been put through to reflect the new measures. With effect from 1 January 2019, the board will need to explain why they consider a candidate could still devote sufficient time to serve the board as an INED when the candidate is holding directorship for more than six listed companies. The board is also required to explain in a circular what the nominated INED is expected to bring to the board in terms of skills and experience. Moreover, introduction/extension of the cooling off periods for professionals or individuals which have had material interests in the issuer’s principal business activities before they can be considered as independent and be qualified as a member of the board is also included in the revised Code and related Listing Rules.
Announcements by the Inland Revenue Department
Members may wish to be aware of the following matters:
- Gazettal of Inland Revenue (Convention on Mutual Administrative Assistance in Tax Matters) Order, allowing Hong Kong to effectively implement the automatic exchange of financial account information in tax matters and the Base Erosion and Profit Shifting (BEPS) package promulgated by the Organization for Economic Co-operation and Development (OECD).
- Gazettal of Inland Revenue (Amendment) (No. 6) Ordinance 2018, primarily implementing the minimum standards of the BEPS package promulgated by the OECD and codifies the transfer pricing principles into the Inland Revenue Ordinance.
- Frequently asked questions on technical explanations about Automatic Exchange of Financial Account Information.
- Stamp duty statistics (June 2018).
Institute’s recent tax submissions
The Institute’s Taxation Faculty has responded to Inland Revenue (Amendment) (No. 5) Bill 2018 and to the Proposed Amendment to People’s Republic of China individual income tax law.
Legislation and other initiatives
Anti-money laundering notices
Members should note the following notices and publications in relation to anti-money laundering and counter-terrorist financing:
- Government notice (extraordinary) 37: An updated list of terrorists and terrorist associates has been specified under the United Nations (Anti-Terrorism Measures) Ordinance.
- The revised Guideline on Exercising Power to Impose Pecuniary Penalty in respect of Anti-Money Laundering and Counter-Terrorist Financing (GL3A) has been published in the Gazette (G.N. 207 of 2018) on 29 June to reflect the enactment of Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) (Amendment) Ordinance 2018 and make corresponding amendment to the title of “Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance” mentioned therein to “Anti-Money Laundering and Counter-Terrorist Financing Ordinance” (Cap. 615).
- High-risk and other monitored jurisdictions: the Financial Action Task Force’s process to identify jurisdictions with significant weaknesses in their anti-money laundering and counter-terrorist financing measures and its work with these jurisdictions to address these weaknesses.
- Specially designated nationals and blocked persons list, published by the United States Treasury’s Office of Foreign Assets Control.
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