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On 31 August 2022, Hong Kong Monetary Authority (HKMA) issued the Guideline on Auditor’s Report for Application for Certification of Funds Issued by the Monetary Authority for Funds and their Investment Managers (Guideline for Funds and their Investment Managers) and the Guideline on Auditor’s Report for Application for Certification of Funds Issued by the Monetary Authority for Practising Members (Guideline for Auditors) (collectively, the Guidelines on Auditor’s Report).
The Guidelines on Auditor’s Report is an extension of the previous Guideline on Certification of Funds Issued by the Monetary Authority under Schedule 16D to the Inland Revenue Ordinance (Cap. 112) (Guideline on Certification) issued by HKMA on 16 July 2021 in relation to tax concessions for carried interest under the Inland Revenue Ordinance (IRO), which sets out the criteria for certification and other matters in relation to HKMA’s certification of funds for the purposes of Schedule 16D to the IRO (Certification).
According to the Guideline on Certification, a fund, as the applicant, has to submit to HKMA a completed “Certification Application Form” and the required supporting documents, including an auditor’s report to apply for certification.
The Guideline for Auditors sets out the responsibilities of, and the procedures that should be carried out by, the auditor in preparing the auditor’s report in support of a fund’s application for Certification, whereas the Guideline for Funds and their Investment Managers sets out the responsibilities of, and the documents that to be provided by, the investment managers on such matter.
Scope of auditor’s report
- Prepared in accordance with the Hong Kong Standard on Related Services 4400 (Revised) Agreed-Upon Procedures Engagements
- An agreed-upon procedures engagement is not an audit, review or other assurance engagement. An agreed-upon procedures engagement does not involve obtaining evidence for the auditor expressing an opinion or an assurance conclusion in any form
Required documents
The investment managers select any one acquisition in any Specified Securities which has been disposed, and provide:
- The executed Acquisition S&P of the selected Specified Securities
- The executed sale and purchase agreement for the disposal of the selected Specified Securities, or for the last disposal if there was more than one disposal
- For each of the SPEs, Interposed SPEs and issuer of the selected Specified Securities shown in the ownership structures:
- A copy of the entity’s audited financial statements for the year in which the carried interest was declared (Declaration Year)
- A copy of the entity’s certificate of incorporation if the entity is a company (to demonstrate that it is a Private Company)
- A representation letter upon request by the auditor
- Ownership structures diagrams
Download HKMA Guidelines on Auditor’s Report for Application for Certification of Funds for Carried Interest Tax Concession
Transitional arrangement
For eligible carried interest received or accrued from 1 April 2020 to the previous year of assessment, the auditor’s report must be submitted to HKMA within 180 calendar days from 31 August 2022 (the date of issuance of Guidelines on Auditor’s Report) for HKMA to process the application.
Timeline for application for certification
The application for certification may be submitted after eligible carried interest has been received by, or accrued to, a qualifying person for a particular year of assessment. The application should be made on or before the applicable deadline which is determined based on the qualifying person’s accounting year-end date.
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Deadline |
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2 May in the following year |
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15 August in the following year |
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15 November in the same year |
Summary
The Guidelines on Auditor’s Reports and the HKICPA Circular provided the clarity to specify what key work steps the auditor should conduct in the agreed-upon procedures engagement, and lay out the suggested level of evidence to be obtained as the basis for the report of factual findings. The Guidelines are explicit and specific, particularly illustrating the example agreed-upon procedures report which enables the investment managers and the auditors to expedite the design and execution of the agreed-upon procedures, and conforms the work scope across different practising members when undertaking such engagements.
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