Auditors in Hong Kong are mounting an increasingly vocal campaign against a proposed new law that would make them face criminal sanctions for shoddy audit work.

The city's lawmakers are in the final stages of considering the new Companies Bill, which includes a clause that would make auditors criminally liable if they knowingly or recklessly omit a required statement from an audit report.

The clause, which has the backing of the city's stock market regulator, aims to put more onus on auditors' responsibilities to ensure investors can rely on companies' financial statements.

Similar rules already exist in the UK, while in the United States there is an independent statutory body, the Public Company Accounting Oversight Board, to keep auditors in check.

In Hong Kong the profession is self-regulating, and has faced accusations that in some instances it has not always been tough enough on reckless auditors.

The bill is scheduled to go before the Legislative Council for its final reading on June 27.

However, the Hong Kong Institute of Certified Public Accountants (HKICPA) said the bill would drive people out of the audit industry as they would run the risk of being criminalised even if there is no dishonest intent behind their actions.

"Talented young members of the profession will seek other career options with fewer risks and the quality of the profession will suffer," said Winnie Cheung, the HKICPA's chief executive, who sent a submission on the bill to the Legislative Council late last week.

The association is also arguing that the rule would not apply to Hong Kong-listed companies that are incorporated offshore, meaning some companies may look to move outside of the city's regulatory regime.

"Despite the good intent for the Companies Ordinance Rewrite to bring Hong Kong company law in line with international norms, the effect of clause 399 could drive more business offshore and create unnecessary barriers for business operations and companies set up in Hong Kong," said HKICPA President Keith Pogson, who is also a senior partner at Ernst & Young. The debate comes as investment bankers in Hong Kong are also up in arms over proposed new rules that would make them criminally and civilly liable for the contents of listing prospectuses. A consultation from the Securities and Futures Commission is considering whether sponsors of initial public offerings should be fined or sent to jail if they are found to have misled investors..

A series of accounting scandals at Chinese companies has also left investors questioning whether some auditors and bankers have failed in their roles to properly vet listed firms.

In March this year Deloitte resigned as the auditor of two Hong Kong-listed companies for alleged accounting irregularities.

Hong Kong's Financial Reporting Council said in April that it had identified 13 Chinese companies listed in the city whose accounts where in need to close monitoring, though it declined to identify them. (Reuters)