ESG on the radar

Hong Kong’s skyline shrouded in a thick haze of pollution, October 2018.

Regulators continue to debate the tax treatment of digital currencies, while governments wrestle with how the public sector should report and be audited.

At a glance

  • Accrual-based accounting by the public sector enables an accurate picture of government finances. It also aids sound risk management and planning.
  • CPA Australia has suggested that the Hong Kong Government consider transitioning from its modified version of accrual-based financial reporting to full accrual-based financial reporting.
  • CPA Australia has provided suggestions for enhancing the Audit Commission’s role and process in Value for Money audits, which have improved public accountability.

By Jonathan Ng

In July 2019, the Singapore Ministry of Finance released the draft Goods and Services (GST) (Amendment) Bill 2019, which included proposed digital payment token provisions to align the GST treatment of a broad range of cryptocurrencies to fiat currencies.

While CPA Australia supported the proposed provisions, we believe that the definition of a digital payment token as “not denominated in any currency, and is not pegged by its issuer to any currency” may raise questions around whether cryptocurrencies designed to minimise volatility (stablecoins), such as the Gemini dollar, which is pegged to the US dollar, or the proposed Facebook Libra digital currency, would be GST-exempt under the proposed legislation.

In contrast to the proposed definition in Singapore, the Australian definition can be interpreted to include a broader range of potential digital currencies or payment tokens.

Therefore, CPA Australia has suggested that the Singapore Ministry of Finance reconsider whether stablecoins should be excluded from the definition, and consider a broader and more flexible legislative definition of digital payment tokens.

Improving public finance management

The Hong Kong Government appears to apply modified versions of cash and accrual-based accounting to publicly report on its financial performance. Accruals based financial reporting appears to have only been partially adopted, with cash-based reporting still forming a substantial part of public reporting of government financial performance.

The International Federation of Accountants (IFAC) considers the application of accrual-based accounting by the public sector essential to providing an accurate picture of government finances, and ensuring that future liabilities are recognised, communicated and planned for properly.

In addition, by recognising and valuing their assets, governments have greater potential to more effectively manage their resources and returns on assets.

The International Federation of Accountants (IFAC) considers the application of accrual-based accounting by the public sector essential to providing an accurate picture of government finances, and ensuring that future liabilities are recognised, communicated and planned for properly.

As accrual-based financial reporting presents information that is more useful for making decisions in public sector financial performance, CPA Australia suggested that the Hong Kong Government consider transitioning from a modified version of accrual-based financial reporting to full accrual-based financial reporting, with such reporting done in accordance with either International Public Sector Accounting Standards or International Financial Reporting Standards (IFRS).

CPA Australia also suggested that the government could publish fully accrual-based and audited financial statements annually.

Public sector value for money audits

Since 1986, the Audit Commission in Hong Kong has performed Value for Money (VfM) audits. While this has helped to improve public accountability, CPA Australia believes that there is room to enhance the role and process of the Audit Commission and therefore to foster greater public accountability.

To do this, CPA Australia provided three suggestions for the Hong Kong Government to consider:

  • With reference to the Victorian Auditor-General’s Office (VAGO) in Australia, provide a clear list of organisations that are performance audited, and elaborate on the kind of public sector organisations/entities that are targeted by the Audit Commission’s VfM audit mandate.
  • With reference to the Australian National Audit Office (ANAO) and VAGO, where members of the community can make suggestions on potential VfM topics, the Audit Commission should consider establishing a channel for the public to suggest potential VfM topics.
  • Establish guidelines to indicate how and to what extent auditees must respond to VfM audit recommendations. The guidelines could take the form of an “if-not-why-not” approach, which requires auditees to justify, for instance, their partial implementation or rejection of recommendations.

Environmental, social and governance reporting

In June 2019, the Hong Kong Stock Exchange (HKEX) published proposed changes to the Environmental, Social and Governance (ESG) Reporting Guide and related listing rules.

The changes included a proposed amendment to environmental key performance indicators. 

The proposal would require disclosure of a description of targets regarding emissions, energy use and waste reduction, among others.

Although this proposal was consistent with international trends in ESG development, there were concerns regarding the capability and competency to implement these practices on a wide scale, and the need to promote a willingness to disclose on contentious and challenging subject matter.

To ensure that the best possible opportunity is given for the revised HKEX guide and related listing rules to translate into improved governance performance, CPA Australia suggested in relation to emissions, energy and other climate-related aspects, that reference be made to the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. This could aid materiality type assessments, both generally and at an industry sector level.

Stay in touch

CPA Australia’s policy team welcomes feedback and comments. Visit the policy pages for more details about our submissions, plus information about open consultations and the latest policy bulletins and newsletters.


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