Institute news

It notes that a low rate and simple system used to be Hong Kong’s competitive edge, however many jurisdictions have reduced corporate tax rates in recent years and moved towards an increased emphasis on indirect taxation. Hong Kong’s profits tax rate of 16.5 percent, therefore, may no longer be as attractive as it was to foreign investors.

In addition, the Institute notes that Hong Kong faces a number of local and external challenges and uncertainties, including the Mainland’s economic slowdown, the on-going United States-Hong Kong trade war, and continuing high property prices.

“The Financial Secretary Paul Chan has indicated his preference for driving economic development through specific tax policy measures instead of lowering the general profits tax rate. Various incentives will be used to promote the development of different industries, which will make Hong Kong’s tax system more and more complex,” said KK So, Chairman of the Institute’s Taxation Faculty Executive Committee. “With the international tax developments that are also affecting Hong Kong and the needs of a dynamic business sector, with new business models, a comprehensive review of the tax system is called for, in order to ensure that Hong Kong can maintain its competitive edge in the long term.”

The Institute believes Hong Kong should also review the existing preferential treatments and tax incentives in its tax legislation to ensure that they are achieving the objective of maintaining Hong Kong’s competitiveness in the global marketplace, and are cost effective.

It adds that the coverage and expertise of the Tax Policy Unit should be expanded to take up more strategic tax issues that could help support Hong Kong’s economic development and competitiveness. “The government’s tax policy unit has successfully completed its initial tasks of helping implement the two-tier tax system and the super-deductions for research and development (R&D), proposed by Chief Executive Carrie Lam. It should now expand its scope of work and expertise to consider more fundamental issues, such as looking into tax policies needed to support Hong Kong’s long-term economic growth and infrastructure development,” said So.

Pan-China (H.K.) CPA Limited, Fung Pui Cheung, CPA (Practising) and Wong Ho Yuen, Gary, CPA (Practising)

Complaint: Failure or neglect by Pan-China and Fung to observe, maintain or otherwise apply Hong Kong Standard on Auditing (HKSA) 620 Using the Work of an Auditor’s Expert, HKSA 500 Audit Evidence and HKSA 230 Audit Documentation. Failure or neglect by Fung and Wong to carry out their work with professional competence and due care in relation to the identified non-compliance areas. Pan-China was also guilty of professional misconduct as a result of its systemic failure to comply with professional standards.

Pan-China issued an unmodified auditor’s opinion on the financial statements of a Hong Kong listed company, China Yunnan Tin Minerals Group Company Limited (now known as GT Group Holdings Limited) for the year ended 31 December 2010. Fung was the engagement director and Wong was the engagement quality control reviewer of the audit.

The Institute received a referral from the Financial Reporting Council (FRC) about irregularities in the audit of the financial statements. The respondents failed to perform adequate audit procedures and prepare adequate audit documentation in respect of the carrying amounts of mining rights and goodwill, which were material assets included in the financial statements.

Decisions and reasons: All the respondents were reprimanded. The Disciplinary Committee ordered Pan-China, Fung and Wong to pay penalties of HK$250,000, HK$50,000 and HK$50,000 respectively. In addition, the respondents were ordered to pay costs of the disciplinary proceedings and the FRC totalling HK$124,914.10. When making its decision, the committee took into account the particulars of the breaches committed in this case, the parties’ submissions, and the respondents’ conduct throughout the proceedings and their personal circumstances.

Mok Wing Kai, Henry, CPA (practising)

Complaint: Failure or neglect to observe, maintain or otherwise apply paragraphs 2 and 4 of Statement 1.200 Professional Ethics Explanatory Foreword and being guilty of dishonourable conduct.

Mok was the company secretary and financial controller of Greencool Technology Holdings Limited, which was formerly listed in Hong Kong. He was also a “qualified accountant” of the group under the GEM listing rules applicable at the time. The group conducted its commercial activities through various subsidiaries in Mainland China. Mok’s responsibilities covered the group’s financial reporting, ensuring its financial integrity and overseeing and supervising all financial information of the group.

As a result of fraud perpetrated by other members of the senior management, the group’s audited financial statements for the years 2000 to 2004 contained materially false information about sales, projects, bank deposits and bank loans of certain subsidiaries in Mainland China. The Market Misconduct Tribunal started proceedings in 2014 in relation to the identified accounting fraud.

The tribunal’s proceedings revealed that at the time of the fraud, Mok tried to remove himself from any responsibility for the subsidiaries’ activities. He accepted a limitation of his role as financial controller to only carrying out financial reporting at group level, and entered into a self-imposed compromise with the directors that potentially damaged the financial integrity of the group. Mok failed to implement the recommendations of the group’s auditor to address their concerns about the finance department’s inability to maintain appropriate financial supervision and control over the group subsidiaries. In the circumstances, the subsidiaries were given free rein over an extended period, working under the management of directors complicit in the accounting fraud.

The tribunal found Mok negligent in relation to the financial statements and, therefore, culpable of market misconduct. It issued sanctions against Mok in 2017 and recommended referring the findings to the Institute. After considering the information available, the Institute lodged a complaint under section 34(1A) of the Professional Accountants Ordinance.

Mok admitted the complaint. The Disciplinary Committee found that Mok failed to carry out his professional work with a proper regard for the technical and professional standards expected of him as a CPA, and to conduct himself in a manner consistent with the good reputation of the profession and Institute. The committee further found that Mok was guilty of dishonourable conduct.