HK Company Law Upgrade Proposals Modified

by Mary Swire, for LawAndTax-News.com, Hong Kong

26 March 2008

The Financial Services & the Treasury Bureau in Hong Kong will withdraw or modify several proposals on upgrading the Companies Ordinance accounting and auditing provisions after taking into account views gauged during a three-month consultation, it was announced on Wednesday.

The consultation was the first of a series of topical consultations in the course of the Companies Ordinance rewrite exercise. It was completed in mid-2007 with 32 submissions.

In consultation with a working group comprising members of the Institute of Certified Public Accountants and government departments, the Government has considered respondents' views.

The Bureau said the majority of respondents generally supported most of the Government's proposals. However, some had reservations about or objections to some proposals.

The proposal to extend the right to inspect a firm's accounting records to managers and company secretaries will be removed because of concerns over accountability and confidentiality.

Another proposal to be dropped concerned the need for directors' reports to reflect any significant difference in the market value of the company's non-current operating assets and their book value.

The Bureau explained that it does not wish to impose an undue burden on directors, especially as Hong Kong's property prices often fluctuate.

While the proposal to require directors to make a statement in the directors' report concerning their awareness of all relevant audit information being disclosed to the auditors will be withdrawn, the Bureau suggested making a director criminally liable if he intentionally withholds certain material information requested by auditors.

Some technical changes have also been made to the proposals concerning a firm's accounting reference period, and the criteria for a guarantee company to take advantage of the simplified accounting and reporting requirements currently applicable to some private firms.

Public consultations on other issues concerning the Companies Bill will be conducted in the coming months.

The final proposals will be incorporated into the Companies Bill, to be issued in the form of a white bill for public consultation in mid-2009.

The proposals, when implemented, will reduce compliance and business costs for small and medium-sized firms, and aim to boost corporate governance in general.

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