28 August 2020


Ms Margaret W.S. Chan
Chief Executive and Registrar
Hong Kong Institute of Certified Public Accountants
37/F., Wu Chung House
213 Queen's Road East
Hong Kong

Dear Margaret

Invitation to Comment on Exposure Draft of The Code of Ethics for Professional Accountants Chapter G Section 100 Professional Ethics Relevant to Anti Money Laundering a nd Counter Terrorist Financing Compliance for Accounting Professionals (“the Exposure Draft")

In respect of the Exposure Draft of the Hong Kong In stitute of Certified Public Accountants (“ I nstitute ”)”), Accounting Development Foundation Limited (“ADF”) has received several enquires and/or concerns from the fellow accountants both in practise and in business. On behalf ADF , we are pleased to share with you some enquiries, concerns and comments we received and observed from the fellow accountants below for your kind consideration.

Due Process and Sufficient and Adequate Consultation
1. The proposals in the Exposure Draft intend to expand the scope of monitoring activities of the Institute. Given expansion which affects all the fellow accountants, some enquiries expressed that period of the invitation to comment on the Exposure Draft is surprisingly limited. The invitation to comment on the Exposure Draft dated 20 July 2020 reached the email box of your members through an email, i.e. “Technical News”, on 22 July 2020 while the institute requires the comments to be received by 28 August 2020. The period of the invitation to comment on the Exposure Draft is about one month only.

With reference to the Invitation to Comment on Exposure Draft “Proposed Amendments to Accounting Guideline 5 Merger Accounting for Common Control Combinations (AG 5)” (“AG 5 Exposure Draft”) dated 17 July 2020, the Institute requires the comments for that AG 5 Exposure Draft to be received by 16 October 2020. The period of the invitation to comment on that AG 5 exposure lasts for three months, which are the normal practice we commonly encounter and understand.
Some enquiries expressed that an one-month period of invitation to comment on the Exposure Draft on amending the Code of Ethics may not be comparable with a three-month period of invitation to comment on the AG 5 Exposure Draft on amending an accounting guideline only.

Not to mention that Hong Kong is experiencing the third wave of the COVID-19 pandemic, some enquires expressed that all are required to keep social distance and practise the home-office policy. In consequence, the fellow accountants may not meet, discuss and consult with each other on the Exposure Draft. You might have also noted that the Inland Revenue Department has also kindly extended the tax reporting deadline for D-code cases from 15 August 2020 to 15 September 2020.

2. The proposals in the Exposure Draft to affect all the fellow professional accountants would definitely involve significant legal, technical and practical implications to all fellow professional accountants, in particular those fellow accountants in business who so far have not been subject to the monitoring activities of the Institute. Some enquiries expressed that, except for the Alert Issue 34 that was emailed to them in June 2020 before the Exposure Draft has been issued, they have not noticed any introductory sessions and/or any online briefing on the Exposure Draft be arranged after the Exposure Draft has been issued. Some concerns expressed whether the fellow accountants have been properly and fully informed and/or whether they have been sufficiently and adequately consulted.


Legal Backing and cking and Legitimate IssuesLegitimate Issues
3. The Alert Issue 34 issued in June 2020 stated that the proposals in the Exposure Draft was one of aspects “in order to comply with the FATF Recommendations”. However, some enquiries expressed that they could not locate the exact recommendations and/or wordings in the FATF Mutual Evaluation Report leading to the Exposure Draft. Some enquiries expressed that it shall be grateful

if you would enlighten them on the exact wordings of the FATF recommendations on “widening the scope” as proposed in the Exposure Draft.
4. We understand that the definition of “accounting professional” in the Anti-money Laundering and Counter-terrorist Financing Ordinance (Cap. 615) (“AMLO”) are restricted to:
a. a certified public accountant or a certified public accountant (practising), as defined by section 2(1) of the Professional Accountants Ordinance (Cap. 50) (“PAO”);
b. a corporate practice as defined by section 2(1) of the PAO; or
c. a firm of certified public accountants (practising) registered under Part IV of the PAO.

Some enquiries expressed that, prima facie, the above definition of “accounting professional” does not include those incorporated entities which are “HK Network and Professional Service Entities” and/or “CPAs who by way of business provide professional services to clients”. However, the Exposure draft proposed to apply to both “HK Network and Professional Service Entities” and “CPAs who by way of business provide professional services to clients”. Strictly speaking and legally, those incorporated entities are legal persons (separate legal entity) not registered under the PAO and not within the definition of “accounting professional” under the AMLO.

Some enquiries also expressed that is legally speaking the Institute’s jurisdiction can be extended to cover those entities (or non-practice units) without the backing of the AMLO and/or the PAO?

5. We understand that the Institute can argue to cover all entities controlled wholly by your members. The logic is that your institute has power over the conduct of the individual members and hence it has power over companies 100% controlled by your members. Then, some enquiries expressed that it might not be one of the FATF recommendations and they wanted to have clarification on it.

If this is the case, how about those entities controlled by a mix of your members and non-members, i.e. non-CPA, and those controlled by non-CPA’s providing professional services (other than TCSP) which are yet to be defined.

6. Some enquiries expressed that, in the Exposure Draft, the constituent “those charged with governance of HK Network and Professional Service Entities are CPAs” may include not only those entities wholly owned and/or controlled by your members, but also those entities managed by your members but not owned by your members.

In case the Institute only targets on those entities wholly owned and/or controlled by your members, it may be easier for one to “escape” from this widen scope, for example, adding a non-member as one of the shareholders and/or directors of those entities.

7. Some enquiries concerned that, in the Exposure Draft, the constituent “CPAs who by way of business provide professional services to clients” refers to “professional services” which are defined in the Exposure Draft. Prima facie, the scope of “professional services” is well beyond that of “specified transactions” as defined in the AMLO. Some enquiries asked whether it is also a requirement of AMLO and/or one of the FATF recommendations and where the requirements and/or recommendations can be located?

Some enquiries suggested, for example, a non-practising CPA who by way of business provide tax compliance work and/or internal audit services would be subject to your scope of supervision under the Exposure Draft. They enquired whether it is really the objectives and/or requirements of the AMLO and/or FATA recommendations?

In short, concerns were expressed that the definition of “professional services” in the Exposure Draft is not only inconsistent with the “specified transactions” in the AMLO, but also extends to a scope without any legal backing or support.

8. In case the AMLO and/or the FATF recommendations require the Institute to regulate the “professional services” as defined in the Exposure Draft, concerns were raised that how the Institute can ensure the completeness of the population of the constituents and/or the professional services, and that the Institute has the full authority to regulate all those entities which provide professional services?

9. Serious concerns were raised that, if the widen scope proposed in the Exposure Draft might have beyond the requirements and/or recommendations of the AMLO and/or FATF, is it required to have a formal consultation with the members, including the issues on whether AMLO and/or even PAO might be amended?

We consider the above enquiries, concerns and comments we received and observed we received and observed are not only related to the Exposure Draft but also the due process of the Exposure Draft and aft and thethe IInstitute’s nstitute’s authority under the AMLO andauthority under the AMLO and/or/or PAO. It might be then better for us to PAO. It might be then better for us to address this letter to you.address this letter to you. Without proper clarification of the above enquiries and Without proper clarification of the above enquiries and concerns, we have serious reservations whether the invitation to comment on tconcerns, we have serious reservations whether the invitation to comment on the he Exposure Draft can be proceeded, concluded and/or finalised.Exposure Draft can be proceeded, concluded and/or finalised.

If you have any questions, please feel free to contact us.
Yours sincerely

Louis CHOW
Chairman, Accounting Development Foundation Limited