AFRC concerns audit quality at risk as fees drop

The Accounting and Financial Reporting Council is concerned about whether the low auditing fees will allow the accounting firms to have sufficient resources to handle projects, but may not intervene in the industry involution. 

Last year, 447 companies, or 17 percent of Hong Kong listed companies, changed their auditors, while the auditing fees for 13 projects recorded a decline by as much as 40 percent year-on-year among 16 inspected projects, according to the 2024-25 Inspection Reports of AFRC.

The changes of auditors were mostly due to auditing fees and the economic downturn in Hong Kong, AFRC said.  

The auditing fees were generally related to the time and effort invested, and AFRC was concerned about whether the firms had sufficient resources to handle the projects, as auditing fees were too low, it added.

In response to regulating auditing fees, David Sun Tak-kei, chairman of AFRC, said that as a free market, Hong Kong allows the pricing for accounting services to be determined by mutual agreement between the client and the firm, adding that he believed the market will naturally self-correct in the long term.

Also, He noted that as the initial public offering market has gained significant momentum in the first half year in Hong Kong, accounting firms could potentially bolster their revenues with new listing business, thereby cushioning the financial impact from declining auditing fees.

HELEN ZHONG