Adventurous voyage

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Evolving profession
An adventurous
voyage
Tavis Lam takes
a look at how
the accounting
profession and
the Institute have
evolved over the
past decade
Setting sail on a new journey is
always an adventure and few
journeys were more unpredictable
than the one Hong Kong took in its
return to Chinese rule in 1997.
Many predicted the demise of this
vibrant capitalist city under communist
China after the handover. Fortunately,
10 years on, Hong Kong is still thriving
as an international financial centre and
a gateway to the fast-growing economy
of the mainland. The city provides
Chinese companies with quick access
to international capital supported by
professional expertise in international
financial reporting and auditing.
Uncertain future
It wasn’t all so rosy for the profession.
Winnie Cheung, who joined the
Institute in 1990 and rose through
the ranks to become its chief executive
in 2004, recalls how many in the
profession were worried because China
had different political and economic
systems, laws and cultures – and a vastly
different accounting system.
“The brain drain of the 90s was
a concern at the time when people
were generally quite worried about
moving into this uncertain future and
many professionals left Hong Kong,”
Cheung says.
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These worries soon faded because
the profession realized the change
brought new business opportunities,
largely due to initiatives taken by the
Hong Kong Society of Accountants
(the predecessor of the Hong Kong
Institute of CPAs) to foster closer
ties with the Chinese Institute of
CPAs and the Chinese Ministry
of Finance. Tim Lui, the society’s
former president and a partner at
PricewaterhouseCoopers, says the
handover was a catalyst for closer
cooperation and paved the way for
Chinese companies to enter the
global stage.
“I think 1997 marked the
beginning of perhaps a new era both
for Hong Kong’s and the mainland’s
accounting professions,” Lui says.
Under his leadership, the society held
more meetings and seminars with its
Chinese counterparts in Beijing and
cooperation between the two sides
strengthened rapidly to a level he had
not imagined possible.
But the fledgling relationship was
soon put to test with the unexpected
arrival of the Asian financial crisis,
which sent stock and property markets
tumbling. The Hang Seng Index
plunged about 30 percent in October
1997, despite the government pumping
HK$120 billion into the stock market
in an attempt to provide support.
Cheung remembers how Hong
Kong sank into a recession almost
overnight, followed by a prolonged
period of gloom for the accounting
profession. “It affected everyone, with
the biggest firms laying off people and
downsizing. Accountants were saying,
‘we can’t find jobs,’ and the firms were
saying, ‘we are losing business.’ Even
the Institute froze salaries and fees for
seven years,” she says.
Hong Kong barely got back on its feet
when the Internet bubble burst in 2000
and terrorists attacked the United States
in September 2001. Then SARS came.
Eric Li, former lawmaker representing
the accounting functional constituency,
says the SARS crisis was “the toughest
time ever” for the profession. “The big
firms competed with smaller firms to
get their businesses, threatening their
existence,” Li says.
Since 2001, the global accounting
profession itself has also undergone
a sea change because of the Enron
scandal. The energy giant inflated
its earnings through accounting
irregularities and finally filed for
the largest bankruptcy in history
in December 2001. Enron became
synonymous with wilful corporate
fraud and corruption, bringing down
its auditor Arthur Andersen, a Big Five
firm at the time.
Lui of PwC remembered how the
collapse of the accounting firm sparked
a confidence crisis and led to tighter
regulations worldwide, including the
introduction of the Sarbanes-Oxley Act
in the U.S.
“Clients’ confidence in auditors was
not affected as much in Hong Kong
as in the U.S., but of course building
trust in the profession is one of the key
themes all over the world,” Lui says.
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Evolving profession
He says the workload of Hong
Kong’s Big Four increased not
only because of new compliance
requirements, but the need to ensure
their practices on the mainland
are aligned with the ever-changing
regulatory environment.
“The China-Hong Kong practice is
becoming very sophisticated... the sheer
size and complexity of the clients make
resource allocation, quality control
and risk management important and
challenging tasks for us,” Lui says.
Professional recognition
Stricter regulations and improved
governance have helped the profession
regain public trust in recent years. An
influx of initial stock offerings from the
mainland also allowed the profession
to bring mainland companies into
the international fold with world
class corporate governance. The lack
of sufficient qualified accounting
professionals to cope with the everincreasing
demand of firms and
businesses has become a new challenge.
Even before the handover and the boom
in financial services, the Institute foresaw
the need to train its own accountants to
cope with rapid developments.
“China’s economy is expanding
significantly, we need to have a
workforce which can handle and assist
in that development,” says Cheung, the
Institute’s chief executive.
Before the Institute introduced its
qualification programme in 1999, Hong
Kong used the Association of Chartered
Certified Accountants (ACCA)’s
programme and did not have a locally
developed curriculum.
“Hong Kong’s education policy
and direction was all determined in
England,” where ACCA is based,
Cheung explains. “We couldn’t
continue to have another body outside
of Hong Kong holding our destiny as
to how the profession would be shaped
in the future... We needed to have our
own people trained, and with the policy
in our own hands.”
The Institute eventually ended its
joint scheme with ACCA and went
through an uphill struggle to gain
worldwide recognition for its QP, which
started out with only 99 students. “We
didn’t realize that it would be such a
difficult battle,” Cheung says. “We had
a qualification programme we realized
would be among the best in the world,
but nobody knew about it. We were little
Hong Kong and little Institute... At the
time we recognized 14 institutes and
nobody recognized us.”
It was not until the 16th World
Congress of Accountants in 2002, which
was officiated by former Chinese Premier
Zhu Rongji in his first trip to Hong
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Kong, that the QP, after a lengthy
process of evaluation, was welcomed
and recognized by six of the world’s
leading chartered accountancy bodies:
They signed reciprocal membership
agreements with the Institute during
the congress.
The QP reached another landmark
in 2005 when it was introduced in the
mainland. In eight years’ time, the
number of QP students jumped from 99
to 8,698 – an increase of 88-fold.
To further elevate the profession’s
image and reputation, the society took
an unprecedented step in 2004 to
rebrand itself. Cheung explains that the
rebranding from a mere accountants’
society to an institute of CPAs was
essential in establishing a clear identity
for the important role the Institute and
its members play in guarding Hong
Kong’s financial system.
“We used to be a great big pot. We
did not have a designation we gave to our
members. Our members were not called
CPAs. They were called associates of the
Hong Kong Society of Accountants,”
she says.
“Hong Kong accountants needed
a proper brand name to give them the
pride and respect they deserve.
“We are producing CPAs from our
QP now... We give [our members] the
proper Hong Kong CPA designation that
came with the assertion of pride – CPAs
are the success ingredient,” she says. As a
testament to its efforts, the Institute has
doubled its membership to more than
26,000 in the past decade.
Looking back, Cheung says the
Institute did a lot of soul-searching
to get where it is now. “We spent the
last 10 years finding our ground. We
were facing up to the challenges and
the difficulties of the Asian economic
crisis, Enron, SARS, the initial setback
of our new qualification programme...
I’d say in 2007 as I look into the
future, I am comfortable with the road
we’ve built. In overcoming the pain
and the challenges we had to face, we
gained a clear direction as to where we
are going.”
Losing self regulation
One of the big changes the accounting
profession around the world has
undergone in the past decade is the
gradual loss of self-regulation. For years,
the Hong Kong Institute of CPAs had
In overcoming
the pain and the
challenges we had
to face, we gained
a clear direction
as to where we
are going.
the power to conduct investigations,
practice reviews and discipline irregular
practices. Since the Enron scandal,
however, the Institute has worked
with the government and agreed to
cede some of its regulatory power
over publicly listed companies to the
newly established Financial Reporting
Council, an independent body funded
partly by the Institute.
“There is a global trend that
institutes are losing their regulatory
power, but we are lucky the Institute
and the government have worked
together closely as partners,” says Eric
Li, the former lawmaker. “We are the
last fortress in the world to maintain
a certain degree of self-regulation. We
may be the last one on the planet to
have achieved it.”
Cheung says the Institute
understands the public’s wish for an
independent regulatory body and that
the move can close loopholes in the
existing regime, as the Institute has
limited power and resources when
investigating listed companies.
“We don’t have the power to get
evidence from non-members to conduct
an effective investigation of these cases,
which are of public interest. So we let
someone else who can command greater
powers to take over the investigation
function from us,” Cheung says.
Cheung, however, still believes that
for a profession based on principles and
standards, where self-discipline and
objective judgment are the core values,
self-regulation remains the most valuable
and respectable regime for upholding
professional standards and conduct
because they are enforced through selfmotivation
rather than external forces.
Looking ahead
For the Institute, Cheung says the ups
and downs it went through in the past
10 years have better prepared it to
tackle challenges. “Bad times actually
test your strength and help you become
stronger. We came out winners in both.
We have learned from it and moved
on to a different plane... Looking into
the future, it is a pretty rosy picture,”
Cheung says.
Eric Li agrees that the future looks
bright for the profession. He thinks
accountants did not get the public
attention they deserved before the
handover as they were perceived to be
too money-minded, but people now
recognize their professionalism. “As the
public understands the profession more,
more young people now see accounting
as an ideal job,” he says. A +
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