Adapting to New Ethical Standards: Understanding the Revisions to Listed Entity and Public Interest Entity Definitions in 2024 (1/2)
In 2024, the Hong Kong Institute of Certified Public Accountants (HKICPA) made significant revisions to the definitions of “Listed Entity” and “Public Interest Entity” (PIE) in Part 4A, Chapter A of the HKICPA Code of Ethics for Professional Accountants. These revisions, thoroughly reviewed and approved by the HKICPA’s Ethics Committee, reflect the growing need to align ethical standards with the evolving financial landscape and ensure that the interests of the public are adequately protected.
Background of the Revisions
The HKICPA Code of Ethics has long been a cornerstone for professional conduct among certified public accountants (CPAs) in Hong Kong. It serves not only as a guideline for ethical behavior but also as a safeguard to maintain public trust in the financial reporting and auditing processes. The 2024 revisions are part of an ongoing effort to keep these standards relevant in a rapidly changing global economy.
The need for these revisions arose from a broader understanding of the significant roles that different entities play in the economy and the potential impact of their financial activities on the public. As financial markets evolve and the number of entities with a significant public impact increase, the definitions of what constitutes a “Listed Entity” and a “Public Interest Entity” must also evolve.
Key Changes in Definitions
The most critical changes involve broadening the scope of what is considered a Public Interest Entity. Previously, the definition was more narrowly focused, generally limited to listed companies. However, the updated definition now encompasses a wider range of entities, recognizing that many organizations, not just those listed on a stock exchange, have a significant impact on the public.
This broader definition includes entities that, due to their nature, size, and number of stakeholders, are of significant public interest. This could include large non-listed financial institutions, insurance companies, and pension funds. The HKICPA has taken this step to ensure that the ethical standards applicable to auditors and CPAs who serve these entities are rigorous enough to protect the public interest.
Implications for Professional Accountants
For CPAs in Hong Kong, these revisions mean stricter ethical standards and a broader scope of responsibilities. Those involved in auditing or providing financial services to entities now classified under the expanded definition of Public Interest Entities must adhere to enhanced ethical requirements. This includes maintaining higher levels of independence and objectivity in their professional conduct.
One of the primary implications is the increased scrutiny on independence. CPAs must now ensure that their relationships with clients do not impair their objectivity, especially when dealing with entities that have a significant impact on the public. This could involve more stringent checks and balances within firms and possibly restructuring certain client relationships to avoid conflicts of interest.
Other aspects will also need to be reviewed such as challenges and opportunities created by these revisions and impact on stakeholders, so keep following us to know more about it in our next week’s article.
References
- Auditor’s responsibilities for an audit of a set of consolidated financial statements prepared in accordance with a fair presentation framework (June 2024): https://www.hkicpa.org.hk/en/Standards-setting/Standards/Whats-News/2024
