Hong Kong's recent move to tighten audit regulations will help it catch up with rival Singapore in the area of corporate governance, financial experts said.
The Hong Kong authorities plan to give the Financial Reporting Council independent oversight of listed entities' auditors, including the power to investigate and penalise errant firms.
Ms Annabelle Yip, a partner at law firm WongPartnership, said on Tuesday that the proposed oversight powers will bring Hong Kong's regulations "more in line with international standards, including Singapore's, and should positively impact Hong Kong's competitiveness in the long run".
Ms Stefanie Yuen Thio, joint managing partner at TSMP Law Corporation, said: "While Hong Kong's stock market has a lot of liquidity, it is also known for the extreme volatility of its prices and patchy corporate governance.
"When drastic share-price movements are linked to audit-related gaps, that can have a negative impact on investor confidence, which Hong Kong is clearly trying to address."
Ms Stefanie Yuen Thio said that while Singapore and Hong Kong "have been traditional rivals", the Republic is ahead in corporate governance rankings and has "stolen a march" with its recent embrace of dual-class shares.
Ms Yip, who is joint head of the corporate governance and compliance practice at WongPartnership, said: "Singapore is ahead in this aspect. There is already an effective framework in place for regulating auditors."
The Accounting and Corporate Regulatory Authority (Acra) is the chief watchdog for the accountancy industry in Singapore.
It rolled out its Practice Monitoring Programme in 2004 to boost audit quality by enhancing surveillance of public accountants' audit work, especially for listed companies.
Acra publishes the names of public accountants whose licences have been suspended or cancelled for serious audit deficiencies. It can also name those who have failed inspections, and been slapped with either a "hot review" or restriction orders.
A hot review means a non-compliant individual must have some audit engagements reviewed by another public accountant, while restriction orders limit the types of entities the accountant can audit.
Ms Yuen Thio said that while Singapore and Hong Kong "have been traditional rivals", the Republic is ahead in corporate governance rankings and has "stolen a march" with its recent embrace of dual-class shares.
Mr Joshua Ong, head of assurance, capital markets and initial public offerings at accountancy and advisory firm Baker Tilly TFW, said: "In this regard, Hong Kong is playing catch-up with many jurisdictions. However, there are several reasons why Singapore has been perceived to lag behind Hong Kong in attracting companies to list here, and retaining them."
He added that there are benefits to increasing scrutiny and raising the bar of audit quality, but "it is crucial to avoid over-regulation", which could deter companies from listing here.
"A balanced approach is needed," said Mr Ong.