Create a Business Environment for High-Quality Accounting and Audit Professional Services
——Interpretation of the Regulations on Certified Public Accountants of Hainan Special Economic Zone
On 29 July 2019, the thirteenth session of the Standing Committee of the Sixth People's Congress of Hainan Province voted through the Regulations on Certified Public Accountants of Hainan Special Economic Zone (hereinafter referred to as the "Regulations"), effective on 1 September 2019.
I. Background and significance of the amendments to the Regulations
The Regulations on Certified Public Accountants of Hainan Province were promulgated and implemented in November 1996 and were first revised in 2002. For 23 years, it has played an important role in regulating the practice of certified public accountants (hereinafter referred to as “CPAs”) in Hainan province and promoting the healthy development of the CPA industry. As situations change, many provisions of the original regulations are no longer applicable to the construction of the China (Hainan) Pilot Free Trade Zone and the Free Trade Port with Chinese characteristics in Hainan and the deepened reform of "streamlining administration, delegating power and strengthening regulation and improving services". It is necessary to amend the regulations, to implement the "4.13" important speech of General Secretary Xi Jinping and the spirit of Zhong Fa  No. 12, further liberate the mind, break barriers that are not conducive to deepening the reform and development, accelerate the development of modern professional service specification for accounting and audit, and create a business environment for high-quality accounting and audit professional services in Hainan Free Trade Zone (Port).
II. Main amendments to the Regulations
The amendments to the Regulations were made to fully meet the needs in the construction of Hainan Free Trade Zone (Port) has been fully considered, in which the legislative power of the special economic zone has been utilized to carry out bold reforms and innovations based on the practice of advanced regions. Therefore, in the form of legislation, the Standing Committee of the People's Congress of Hainan Province has abolished the Regulations on Certified Public Accountants of Hainan Province and formulated the Regulations on Certified Public Accountants of Hainan Special Economic Zone. The amendments to the Regulations not only comply with the existing laws and regulations, but also have some breakthroughs in certain provisions and meet the reform requirements of "streamlining administration, delegating power and strengthening regulation and improving services", achieving a business environment featured with complete licensing system, smooth introduction of talents, loose market access, and fair and just regulation.
1.Lower the access "threshold" for business qualifications and encourage accounting firms to become stronger and larger. At present, most of the accounting firms in Hainan province are under the structure of general partnership and limited liability, featured with smaller scale and less acceptance of accounting and audit services than those under the structure of special general partnership with large scale and large number of employees. Therefore, the Regulations has appropriately reduced the staffing required for the establishment of a special general partnership accounting firm from 15 partners and 60 CPAs to 10 partners and 40 CPAs, breaking the existing business restrictions on the access "threshold" for the qualification of special general partnership accounting firm, with the aim to support Hainan province's accounting firms to become stronger and larger, and create favorable conditions for the establishment or introduction of headquarters of special general partnership accounting firms in the future to facilitate the economic construction of the Free Trade Zone (Port).
2. With marketization as the core, improve the diversified organizational form and service system. First, based on international common practice and the diversified establishment of accounting firms in advanced regions such as Hong Kong, allow the establishment of individual accounting firms to meet the growing demand for accounting services such as the bookkeeping agency service for small and medium-sized enterprises in the Free Trade Zone (Port) in the future. Second, integrate the accounting and audit business platforms to keep in line with the existing laws, regulations and departmental rules and regulations related to the market of existing professional assurance service, incorporate professional services featured with unclear market business subject such as tax assurance and asset evaluation into the business scope of accounting firms, improve the business service system of CPAs, and comprehensively promote the high-quality professional level of modern accounting and audit services of the Free Trade Zone (Port) of Hainan province.
3. Ease practice registration access conditions to attract international professionals. The Law of the People’s Republic of China on Certified Public Accountants stipulates that whoever has engaged in audit business for more than two years may apply for the CPA certificate. In this regard, the Regulations interpret the detailed easing conditions, according to which, when accountants in Hong Kong and Macao apply to the Hainan Special Economic Zone for Chinese CPA certificates, the time during which they engage in the audit work in Hong Kong and Macao shall be regarded as the equivalent time they engage in the audit work in mainland, which shortens the time before they can begin to work in Hainan Special Economic Zone, facilitating the introduction of international accounting firms, cultivating international audit and accounting professionals, and ensuring that the accounting and audit professional service level in Hainan province is in line with international standards. In addition, the Regulations also stipulate that if permanent residents in Hong Kong and Macao who have obtained the Chinese CPA certificates apply to become partners of accounting firms, the engagement hours in Hong Kong and Macao shall be regarded as the engagement hours in mainland.
4. Ease the age limit for CPAs as partners in accounting firms to ensure that the qualified professionals can be fully used. Implement the spirit stated in the Opinions on Giving Full Play to the Roles of Migratory Talents of Hainan province, adopt more active and open talent policies, introduce migratory CPAs to make contributions after retirement, and ease the age limit for partners establishing accounting firms from 65 years old to 70 years old.
5. Simplify approval management and improve service efficiency. First, streamline required materials, to reduce the application materials of CPAs from the 6 items to 3 items. Second, streamline administration and delegate powers. The contents that do not meet the requirements of streamlining administration, delegating powers, improving regulation and strengthening services, such as the approval of the closure of accounting firms and the periodic performance evaluation of CPAs have been deleted to reduce the burden of accounting firms and CPAs. Third, optimize services. Fully implement the online electronic process of approving the registration of CPAs and the practice licensing of accounting firms. The provincial financial authorities and the provincial institute of CPAs directly collect supporting information through the public data platform to confirm relevant matters. Fourth, speed up approval. Clarify the procedures of establishing accounting firms according to the principle of “license first, certificate second”. The period for approving accounting firms by provincial finance authorities is shortened from 30 days to 15 days. The period for approving the registration of CPAs by the provincial institute of CPAs is shortened from 30 days to 15 days.
6. Strengthen the follow-up regulation and create a good practice environment. Lower the “threshold” for business qualification access and ease the access conditions for practice registration in advance, and highlight “strict management” follow-ups to ensure orderly and standardized practice behavior. First, clarify that accounting firms are not allowed to promote business through improper prices, denigration of peers, coercion, fraud, bribery and other means and not allowed to sell CPA business reports. Second, clarify that CPAs are not allowed to be engaged to collect debts; not allowed to advertise their abilities to promote business; and not allowed to prompt or assist clients or auditees in preparing false accounting information. Third, adjust some penalties and strengthen the supervision and management of accounting firms and CPAs.
Hainan Institute of Certified Public Accountants
14 August 2019