Deferral of IFRS/HKFRS 17

On 14 November, the International Accounting Standards Board (IASB) tentatively proposed to defer the effective date for IFRS 17 Insurance Contracts by one year, and extend the temporary exemption for insurers to apply IFRS 9 Financial Instruments to 2022. Following the Hong Kong Institute of CPA’s standard-setting due process, a Hong Kong public consultation on the IASB proposals will commence as soon as the IASB exposes its proposals for comment. The Institute strongly encourages Hong Kong insurers to respond to the Institute’s and/or the IASB’s consultation documents. The Institute may consider roundtable forums for stakeholders to voice their views. The Institute will deliberate whether to defer the effective date of Hong Kong’s equivalent insurance standard, HKFRS 17, once it hears the feedback of Hong Kong stakeholders including insurers and investors, and once the IASB makes its final decisions. The Institute will continue with its education efforts on IFRS/HKFRS 17, and remains committed to continue assessing of implementation developments in Hong Kong, facilitating discussions with the industry, and working together with the industry and the IASB to resolve those challenges.

KPMG suspended in Oman

KPMG Oman has been suspended from auditing listed entities after accounting irregularities were found. The ban, effective for one year, also extends to performing audits on securities firms, insurers and companies regulated by the Capital Market Authority (CMA). The Sultanate of Oman said that action would be taken to protect investors and stakeholders. In a review, the CMA said auditors had “established professional negligence on the path of some audit firms that warranted disciplinary measures against them in the interests of the investors and other stakeholders.” The firm told Arabian Business it is “cooperating with the CMA to resolve these matters.”

Former Malaysian prime minister accused of tampering with audit

Najib Abdul Razak, Malaysia’s former prime minister, has been accused of tampering with the National Audit Department’s audit report on 1Malaysia Development Berhad (1MDB), a government-run strategic development company. The discovery sheds light on Najib, who in 2015 was accused of channelling over RM 2.67 billion (US$638 million) from 1MDB. According to media reports, orders were made by Najib to remove the mention of businessman Low Taek Jho’s name from the final audit during preparation. Low is the beneficiary of numerous discretionary trust assets said by the United States government to originate from payments out of the Malaysian 1MDB fund. Auditor-general Madinah Mohamad, who briefed the Malaysian cabinet on 23 November, says Low’s name was removed to prevent the opposition from using it against the government. Najib, who had a professional relationship with Low, also purportedly ordered that paragraphs containing two versions of 1MDB’s 2014 financial statements be removed from the document. Najib has denied all charges so far.

Deloitte proposes cap on market share

Deloitte’s British unit proposed a market share cap in the United Kingdom’s audit market in its evidence submission to the Competition and Markets Authority’s (CMA) review. The firm says capping the number of clients a firm can audit, especially FTSE 350 clients, would address choice and competition issues, reduce entry barriers for firms beyond the Big Four and reinstate public trust of the audit market. Their announcement came a day after KPMG said it would no longer perform consultancy work for companies if it is also auditing them to “remove the perception of a possible conflict” of interest, according to BBC News.

Stephen Haddrill to leave U.K. FRC next year

Chief Executive of the United Kingdom’s Financial Reporting Council (FRC) Stephen Haddrill plans to step down from his post. Haddrill, who has been with the FRC for close to a decade, said he will leave the council in late 2019. His announcement comes amid mounting criticism faced by the audit watchdog for the spate of corporate collapses during its watch, such as construction group Carillion and British department store BHS. His exit date will depend on a review led by Chairman of Legal and General plc Sir John Kingman, which will examine the effectiveness of the FRC as a regulator. Haddrill said, “I am incredibly proud to have led the FRC for nearly nine years. I remain fully committed to taking forward the FRC’s important programmes on audit reform, investor stewardship, corporate reporting and preparing the FRC for [the U.K.’s] EU exit.”

Samsung faces accounting concerns

Samsung BioLogics, parent company of biopharmaceutical company Samsung Bioepis, has been fined US$7 million by South Korea’s financial regulatory body. The Securities and Futures Commission alleged that the company used fraudulent accounting methods in 2015 to inflate the value of Bioepis ahead of its initial public offering in 2016, which eventually raised US$2 billion. Trading has since been suspended, and the commission has recommended that the company should be delisted from the Korean stock exchange. In a letter to shareholders, the company apologized but denied any wrongdoing, claiming that their accounting practices were acceptable, having sought advice from multiple accounting firms. They now plan to file a lawsuit to “clearly prove the legality of Samsung BioLogics’ actions.”

U.S. government investigates Snap’s IPO

Snap Inc., Snapchat’s parent company, is being investigated for allegedly manipulating its US$3.4 billion initial public offering. The company announced on 14 November it had received a subpoena from the United States Department of Justice and the Securities and Exchange Commission requesting information relating to its IPO in March 2017. The class action suit accuses the company of making “materially false and misleading statements” and for dismissing an employee who questioned their metrics after three weeks on the job. Snap denies the claims in a statement, saying: “We continue to believe the class action’s claims are meritless and our IPO disclosures were accurate and complete. We intend to continue to cooperate with these regulators on their subpoenas and requests for information.”

Nissan chairman arrested for tax evasion

Carlos Ghosn, the 64-year-old chairman of Japanese multinational automobile manufacturer Nissan, was arrested on 19 November on charges of falsely reporting his earnings. He was dismissed from the company four days after his arrest. Prosecutors are accusing Ghosn of under-reporting the 5 billion yen (HK$343 million) he earned at Nissan over five years from 2010. He is also accused of using 2.6 billion yen in company money to buy several homes and is suspected of shifting some 1.7 billion yen (HK$117 million) of losses from personal investments to the automaker in 2008. Both Ghosn and Greg Kelly, the Nissan executive accused of conspiring with him, deny the claims.