New Hong Kong Corporate Investigator To Launch In 2005

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

01 June 2004

The Hong Kong government has come under fire for under-resourcing its proposed Independent Investigation Board (IIB), which will have a role comparable to the US' Public Companies Accounting Oversight Board.

The PCAOB, which was set up in the wake of a string of corporate scandals and following the high profile Sarbanes-Oxley legislation, has a budget of more than US$100m, but the IIB will have to get by on hardly more than US1m.

There is wide support for the new body, which will take over responsibility from the Hong Kong Society of Accountants for financial investigations. The HKSA, which relies upon part-time investigative work by unpaid members, is perceived to have been largely ineffective and extremely slow in dealing with accounting frauds and scandals.

Announcing the formation of the IIB earlier this year, Frederick Ma, secretary for financial services and the treasury, said: "The intention is to improve the independence and transparency of investigation procedures, therefore enhancing public confidence. We issued a consultation paper in September 2003 and have received overwhelming support for the IIB to be established. Accountants need to take corporate governance seriously. Top accounting firms should take the lead in improving their governance, enhancing their transparency and providing channels to allow scrutiny by those who are not involved in the decision-making process."

The IIB will have a staff of 10 and will act on references from other regulators, but unlike its US and UK equivalents will not have powers to act on its own or to create regulatory standards. The IIB should start its work in 2005, but many doubt whether it will be successful on such a low budget. "It is obvious that HK$8 million is not going to be enough to set up a good investigation team. With such a low budget, we have to question whether the proposed board is just a hollow gesture," Chan Kam-lam, economic affairs spokesman for the Democratic Alliance for Betterment of Hong Kong, told the South China Morning Post. "It will not benefit the Hong Kong market if we set up an investigation board that does not have enough money to hire experts and fulfil its duties."

The government is thought to have wanted a larger budget for the IIB, but failed to secure sufficient financial backing from HKSA, the SFC and HKEx.

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