Hong Kong Regulator Warns of Price War Among City’s Accountants

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Hong Kong’s regulator warned that a price war among the city’s accounting firms could impact quality of reports amid a boom in listed companies.

In a report offering a broad overview of the industry from 2010 to 2019, Financial Reporting Council found average audit fees increased 1% a year, on average, per listed company over the period and that companies are able to pay less when switching auditors.

On top of that, about 80% of listed companies in Hong Kong pay fees below the average each year, which “indicates significant skewing of fees,” the regulator said in the report.

“Of significant relevance to the FRC is whether audit quality has been maintained in these market conditions,” Marek Grabowski, the regulator’s chief executive officer, said in the report.

Hong Kong’s market has added more than 1,140 companies over the period, while the city has seen a net increase of only six accounting firms.

Audit fees paid by the top 20 listed companies, led by HSBC Holdings Plc, CK Hutchison Holdings Ltd. and Bank of China Ltd., amounted to HK$3.45 billion ($445 million) in 2019, representing 28% of the total paid by all listed firms.

RankListed CompanyAudit Fee in 2019 (HK$ million)
1HSBC Holdings Plc668
2CK Hutchison Holdings Limited246
3Bank of China Ltd244
4Industrial and Commercial Bank of China Ltd226
5Manulife Financial Corporation193
Source: Financial Reporting Council

The regulator also found big firms auditing more than 100 listed companies per year dominate the market, with the 6 “Category A” firms having more than 70% of the market since 2013.

High cost of entry and interdependence among major firms have “significant implications” in audit services, the FRC said.

©2021 Bloomberg L.P.

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