Hong Kong Exchanges and Clearing (HKEX) has rolled out new requirements that make it harder for listed companies to switch auditors without shareholder approval.
According to a Bloomberg report, the move is aimed at improving corporate governance standards in the $7.5tn market.
As per the new guidance, HKEX now requires listed companies to appoint or remove their auditors only at general meetings. Board-driven changes without a shareholder vote will no longer be allowed.
The exchange has further asked companies to spell out “specific audit fees or ranges” in their disclosures. The intention is to limit the scope for citing disagreements over remuneration as grounds for dismissing an audit company.
With these measures, HKEX is closing a loophole that previously allowed boards to exert pressure on auditors to step down without immediate involvement from investors, according to the publication.
Going forward, any company action that leads to an auditor’s resignation will be treated as a removal, triggering the need for a formal vote.
The rule change arrives amid a clampdown on “opinion shopping”, where issuers nudge auditors to quit close to filing deadlines and then hire a more accommodating company through a casual vacancy process.
The Securities and Futures Commission in Hong Kong has also warned that late-stage resignations are warning signs of governance and internal control problems.
In a recent review, the regulator noted that auditors at 89 listed companies resigned within four months of annual reporting deadlines, with 66 of those departures linked to “fee disagreements”.
Regulators maintain that outright financial fraud is not widespread in Hong Kong, but they are intensifying checks on listed-company quality in an effort to attract and retain investors.
“HKEX strengthens governance with tougher auditor change rules” was originally created and published by International Accounting Bulletin, a GlobalData owned brand.
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