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In April 2026, Hong Kong Exchanges and Clearing (HKEX) updated FAQ 16 on the core shareholder protection standards, clarifying expectations for listed companies¡¯ appointment, reappointment and removal of auditors. Although framed as an audit-fee disclosure update for annual general meeting (AGM) circulars, it also links audit fees with audit committee oversight, audit quality and shareholder approval.

Fee disclosure

Audit fees are no longer treated simply as a commercial matter between management or the board and the auditor. Under the new FAQ, where an AGM circular asks shareholders to approve the appointment or reappointment of an auditor and to authorise the fixing of its remuneration, the circular should disclose the estimated audit fee agreed between the company and the auditor. The fee may be presented either as a specified amount or as a range, but the circular should also explain the basis of determination and the assumptions as discussed between the issuer and the auditor (for example, complexity and business plan of the listed issuer, the expected audit scope, audit timetable and auditors¡¯ resources required). Unless those assumptions or the underlying basis change materially, the final fee should not, in principle, differ materially from the estimate disclosed in the circular.

That requirement will change the more generic disclosure practice seen in the past. Many issuers previously did little more than state in the circular that shareholders were being asked to authorise the board to fix the auditor¡¯s remuneration. The new FAQ brings fee expectations into the shareholder materials at the outset, allowing investors to judge, on a more informed basis, whether the appointment or reappointment is reasonable.

It also means that a later attempt to replace the auditor on the ground of a ¡°disagreement over audit fees¡± will face closer scrutiny. If an estimated fee was agreed before the AGM, an issuer that later says no agreement can be reached must explain whether the gap arose from changes in audit scope, circumstances, timetable, or another key assumption.

Resignation or removal

The most significant part of the FAQ, however, is its clear warning that where an issuer asks an auditor to resign, or takes action to cause the auditor¡¯s resignation, such request or action may amount to a removal of the auditor by the listed issuer, which requires shareholders¡¯ approval under the listing rules.

In its March 2026 review of the HKEX¡¯s performance in regulating listing matters, Hong Kong¡¯s Securities and Futures Commission (SFC) made a similar point, noting that requiring an auditor to resign may in practice sidestep the listing rules mechanism under which an auditor¡¯s removal must be approved by shareholders.

The new FAQ responds directly to that concern. It gives a concrete example ¨C pressuring the existing auditor to materially reduce the previously agreed fee ¨C that may raise the same issue.

Future analysis of auditor changes will turn on substance, not labels. Even if the documents call the event a ¡°resignation¡± or a ¡°change¡±, regulators are likely to examine: whether the incumbent had already been appointed at the AGM; whether the issuer sought quotes from other firms; whether the auditor was asked to stop work or resign; whether a lower rival bid was used to force a fee cut; and whether unresolved audit issues, accounting disputes or scope disagreements remained.

If the issuer in substance caused the auditor to leave mid-term, appointing a replacement by board decision alone may not satisfy the procedural requirements.

Regulatory shift

This also shows how regulatory attention has shifted away from whether the market was notified promptly, and towards why the auditor was changed, who drove the change, and whether audit quality may have been affected. In recent years, the Accounting and Financial Reporting Council has repeatedly warned that auditor resignations close to year-end, aggressive fee cuts, delayed payment of audit fees, and boilerplate references to ¡°audit fee disagreements¡± can all damage audit quality and weaken confidence in the market.

The key questions now include whether there are unresolved audit matters, whether the incoming auditor has the industry experience, staffing and time needed to complete the audit, and whether the audit committee has genuinely investigated the reasons for the outgoing auditor¡¯s departure and independently assessed the incoming firm¡¯s capability and the reasonableness of its fee.

For listed companies, the starting point is to distinguish between routine rotation, non-reappointment, resignation during a term, and cases that may in substance amount to removal. If the incumbent auditor has already been appointed by shareholders and the company is considering a mid-term change by seeking quotations from other audit firms, pressing for fee reductions, or asking the auditor to cease acting, it should assess, before the board makes any decision, whether shareholder approval is required and whether a circular needs to be prepared.

The audit committee should not simply sign off on the final announcement. It should engage early, review the outgoing auditor¡¯s resignation letter, and speak to the auditor without management present to test the stated reasons and whether any audit matters remain unresolved.

When choosing a replacement auditor, the company should keep a written record covering the incoming firm¡¯s independence confirmation, listed-company and sector experience, engagement team, audit plan, timetable, quality control arrangements, professional clearance and fee basis.

If the incoming auditor¡¯s quote is materially lower than the incumbent¡¯s, the audit committee should explain why it still supports the work required, rather than citing cost savings alone. Minutes of board and audit committee meetings should record the discussion, the questions asked, the materials reviewed, and the basis for the judgment reached.

Taken together, the FAQ shifts regulation of auditor changes toward substantive review. For issuers, The issue is no longer how the announcement is worded, but whether they can show the reasons were genuine, the process robust, shareholder rights respected and audit quality preserved.

Since the FAQ was issued, there have already been cases in which a company first announced only the auditor¡¯s resignation and the appointment of a new auditor, but later disclosed that it had actively prompted the resignation and then sought shareholders¡¯ approval at a general meeting both to remove the outgoing auditor and to appoint the replacement.

That suggests the FAQ is already affecting market practice. Under this stricter approach, listed companies, and especially audit committees and boards, will need to take a far more careful view of process, disclosure and audit quality when handling an auditor change.

Stella Yeung and Stephen Luo are partners at Jingtian & Gongcheng