Local updates
Technical bulletin
The Institute’s Auditing and Assurance Standards Committee issued the Implementation Guidance on Revised Hong Kong Standard on Investment Circular Reporting Engagements 400 Comfort Letters and Due Diligence Meetings.
Invitations to comment
The Institute is seeking comments on:
- Exposure Draft Practice Note 830 (Revised) Reports by the Auditor under the Banking Ordinance by 26 November; and
- Post-implementation Review of Small- and Medium-sized Entity Financial Reporting Framework and Financial Reporting Standard by 18 February 2019.
International updates
IFRS updates
- October International Accounting Standards Board Update and workplan.
- September IASB Transition Resource Group for IFRS 17 meeting summary and podcast.
- Podcast and press release on October IASB meeting, which covered the next steps in implementation support for IFRS 17
Other publication
- International Auditing and Assurance Standards Board published an update on how it has addressed and plans to address professional scepticism within the standards.
Professional accountants in business
Company director convicted for giving false information to Companies Registry
A director of a Hong Kong company was prosecuted by the Companies Registry (CR) under section 750(6) of the Companies Ordinance for knowingly or recklessly giving false or misleading information to the Registrar of Companies. The case relates to false information provided by the defendant in the application form which was lodged with the CR for deregistration of a company.
The director pleaded guilty and was fined HK$15,000 for the charge.
COSO and WBCSD guidance on ESG-related risks
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) and the World Business Council for Sustainable Development (WBCSD) have recently released “Guidance for Applying Enterprise Risk Management (ERM) to Environmental, Social and Governance (ESG)-related Risks.”
This guidance, which aligns with COSO’s widely accepted ERM–Integrating with Strategy and Performance, is intended to bring ESG risks and opportunities into a clearer focus for mainstream business and other organizations around the world. It is designed to enhance organizations’ resilience as they confront the increasing prevalence and severity of ESG-related risks, ranging from extreme weather events to product safety recalls.
Small and medium practitioners
IFAC SMP Survey reveals digital transformation talent management as key to growth for SMPs
International Federation of Accountants (IFAC) conducted the 2018 Global Small and Medium Practices (SMP) Survey early this year and has recently released the results. Targeted at senior SMP professionals, whose clients are predominately small- and medium-sized entities, the survey takes a snapshot of key issues, and tracks important trends and developments, facing this critical sector.
The survey received more than 6,000 responses from 150 countries.
According to the survey results, over a quarter of SMPs plan to allocate more than 10 percent of practice revenue over the next year to technology investment, reflecting its importance in practice management and operations. As transactional activities become increasingly automated, firms are leveraging technology to provide business insights from data analytics as a new service offering. A significant majority of SMPs provide business advisory and consulting services, with a majority of those predicting a moderate or substantial fee revenue growth over the next 12 months in this service line.
Talent remains a top challenge for SMPs. The majority have difficulty attracting next generation talent, with 66 percent stating the number one reason is lack of candidates with the right mix of skills. This highlights the importance of continuing education and the development of new competencies for the digital global economy.
Corporate finance
Institute comments on review structure in relation to Listing Committee decisions
The Institute issued a submission on 12 October responding to Hong Kong Stock Exchange’s (HKEX) proposals to streamline the review process for listing matters and enhance transparency in decision-making. While we support the general direction of HKEX’s proposals, the Institute suggests that qualified senior and experienced market participants/professionals, who have not served on the Listing Committee, should be the members of the proposed new independent review committee (ILRC). This can increase the independence and competence level of the new ILRC for replacing the existing two-level review process.
In addition, the Institute considered that the authority of the ILRC, provided that it is formed from independent and suitably qualified members, should be strengthened. In particular, the ILRC’s decisions should be regarded as final andconclusivetoexpeditethereview process.
SFC consultation conclusions on amendments to anti-money laundering guidelines
The Securities and Futures Commission (SFC) published consultation conclusions on amendments to anti-money laundering and counter-terrorist financing (AML/ CFT) guidelines on 12 October.
According to the revised guidelines, international organization politically exposed persons (PEPs) will be included in the categories of PEPs. Enhanced due diligence procedures for foreign PEPs will be applied by firms on the domestic PEPs and international organization PEPs, if their business relationships with the firm are assessed to be of high risk.
Firms are also given flexibility to adopt reasonable risk-based measures to verify customer identification information.
The revised AML/CFT guidelines took effect on 1 November.
SFC consultation conclusions on financial resources rules
The SFC published consultation conclusions on proposed amendments to update the Securities and Futures (Financial Resources) Rules (FRR) on 19 October.
The main changes include: (i) relaxing the treatment for foreign currencies subject to exchange control; (ii) clarifying the treatment for non-freely floating foreign currencies; (iii) introducing and updating haircut percentages for certain types of securities and investments; and (iv) refining the treatments for amounts receivable arising from securities transactions.
The proposed amendments were gazetted and will be submitted to the Legislative Council for negative vetting, and are expected for be effective from 1 April 2019, with the exception of amendments related to a new accounting standard which will take effect on 1 January 2019.
Taxation
Announcements by the Inland Revenue Department
Members may wish to be aware of the following matters:
- New requirements relating to double taxation relief on salaries tax-transitional arrangements.
- Passing of the Inland Revenue (Amendment) (No. 4) Bill 2018, which gives effect to a tax deduction under salaries tax and personal assessment to people who purchase eligible health insurance products for themselves or their specified relatives under the Voluntary Health Insurance Scheme, starting from 1 April 2019.
- Gazettal of:
– Inland Revenue (Amendment) (No.7) Ordinance 2018 to provide enhanced tax deduction for the expenditures incurred by enterprises on research and development activities in Hong Kong.
– Inland Revenue (Amendment) (No. 7) Bill 2018, which, among other things seeks to align the tax treatment of financial instruments with their accounting treatment.
– The Financial Institutions (Resolution) (Loss-absorbing Capacity (LAC) Requirements – Banking Sector) Rules, and the Inland Revenue (Amendment) (No. 6) Bill 2018, in view of the commencement of the Financial Institutions (Resolution) Ordinance (Cap. 628) to prescribe minimum LAC requirements for authorized institutions and their group companies.
– A legal notice to authorize a change in the rate of interest payable on Tax Reserve Certificates.
– Stamp Duty statistics (September 2018).
Legislation and other initiatives
Anti-money laundering notices
Members should note the following notice and public statement in relation to AML/CFT:
- Government Notice 7778: Pursuant to section 133(1) of the Insurance Ordinance (Chapter 41) and section 7 of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Chapter 615), the revised Guideline on Anti-Money Laundering and Counter-Terrorist Financing (GL3) is published by the Insurance Authority. The revised Guideline comes into operation on 1 November2018, and shall supersede the previous version of the Guideline.
- Subsequent to the Financial Action Task Force (FATF) Plenary and Working Group meetings held between 14 to 19 October 2018, FATF issued a public statement regarding two jurisdictions, and a document titled “Improving Global AML/CFT Compliance: On-going Process” concerning eleven other jurisdictions. Members are advised to take note of these materials.
For updates on lists of terrorists, terrorist associates and relevant persons/entities under United Nations sanctions, members should also refer to the Institute’s AML page.
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