Enforcing ethical conduct of PAIBs

Elaine Chung

Past disciplinary cases show the serious consequences of non-compliance

The Institute is responsible for regulating the conduct of its members – including professional accountants in business (PAIBs).

At the Institute’s Financial Controllership Programme (FCP) held in November 2019, I talked about the Institute’s regulations relevant to PAIBs, including some examples of disciplinary cases with emphasis on key learning points such as what could go wrong and how non-compliance with professional standards could result in serious consequences. While the participants were receptive to the learning points, some expressed surprise about the nature and outcome of the disciplinary cases.

In most of the cases discussed, the CPAs were not found to have intentionally committed wrongdoings. The root cause of the problems were that the CPAs failed to take full responsibility and the right actions.


In one case, the CPA was a financial controller of a listed company based in Hong Kong. The company’s main operations, including its accounting functions, were located in Mainland China. The company’s consolidated financial statements contained various materially false information for at least five years, including fictitious sales and inflated bank balances.

The CPA had no knowledge of the fraudulent activities. In fact, the CPA had little or no knowledge of the company’s operations in the Mainland, despite having long been the financial controller of the company and its group. The Market Misconduct Tribunal (MMT) found that the CPA’s ignorance and negligence was one of the causes of the company’s publication of false information in the accounts.

As the financial controller, the CPA was responsible for overseeing and supervising all financial information of the group, which included reviewing the accounts and records of all companies in the group. However, the CPA considered his role was only limited to the financial reporting at the group level in Hong Kong.

Even though the auditor had previously expressed concerns that the CPA’s team in Hong Kong knew little about the financial position and business operations in the Mainland and recommended that the financial supervision and control should be strengthened, the CPA took no steps to follow the recommendation.

The CPA was reckless and wrong to have self-imposed a reduction in his role as the financial controller by not taking responsibility for the company’s operations in the Mainland. Had he taken steps to address the auditors’ concerns and strengthened the internal controls in the Mainland’s operations, the problems could have been discovered or even prevented sooner.

The MMT found the CPA lacked full understanding of his professional obligations and failed in his duty of care to the company and the market. The MMT issued an order disqualifying the CPA from taking on the role of a director of a listed company because he lacked the strength of character to take on the more onerous duties of a director. The case was subsequently referred to the Institute and the Institute’s Disciplinary Committee found the CPA’s conduct fell below the standards expected of a professional accountant and as such, guilty of serious breach of professional standards. The committee ordered that the CPA be removed from membership.

In this case, the CPA was aware that there was a problem but did nothing to rectify the situation. He ignored and disregarded the responsibilities associated with his position as the company’s financial controller. This example reminds us that doing nothing when something is wrong is as bad as doing something wrong. A professional accountant in similar circumstances should have taken steps to do the right thing. Otherwise, companies, as well as the investing public, suffer as a result.

Absolving responsibilities

Another case we shared at the FCP was to remind participants that the conduct of professional accountants in the preparation of financial statements is under the Institute’s close scrutiny.

The Institute deals with a number of cases against auditors in relation to audit irregularities. Where cases involve improper accounting treatments, the Institute may also enquire into the conduct of the CPAs who are responsible for the preparation of the financial statements.

In one case, the CPA was an executive director and the chief financial officer of a listed company. He was responsible for supervising the financial reporting team and preparation of the financial statements. For two consecutive financial periods, the financial statements contained material accounting errors representing violations of multiple financial reporting standards. The errors stemmed from improper assumptions used by the accounting team that were clearly without basis and non-compliant with accounting standards.

As the head of the accounting team, the CPA simply accepted the team’s work without appropriately assessing whether the accounting treatments were compliant with accounting standards. During the Institute’s enquiry on this matter, the CPA blamed the auditor for not identifying and reporting on the errors. A CPA responsible for preparation of financial statements is required to comply with the relevant professional standards and be able to justify any departures. This responsibility cannot be absolved by solely relying on the auditor to identify non-compliance.

The Institute found the CPA to have acted in breach of the fundamental principle of professional competence and due care; and failed to have proper regard to professional standards in his work. He was reprimanded by the Institute under the terms of a Resolution by Agreement.

A CPA has full responsibility to act in an ethical manner and abide by the professional standards issued by the Institute. The conduct of the CPAs mentioned above breached the trust and confidence entrusted upon them by the public and shareholders of the company.

As these disciplinary cases show, there are serious consequences to unethical conduct by PAIBs, especially when they fail to take full responsibility.

This article is contributed by Elaine Chung, the Institute’s Head of Enforcement

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