Institute’s response to 2021-22 Budget
The 2021-2022 Budget includes 10 suggestions made by the Institute in its budget submission. The Institute considers that the government is right to be prudent on budget measures amid global economic uncertainties. However, the Institute recommends the government to continue to explore broadening the tax base. Although the Institute appreciates the distribution of consumption vouchers, the administrative procedures should be simple to accommodate the needs of different citizens. Read the Institute’s press releases and budget proposals on the Institute’s website and our response to the budget here.
Task Force on the Financial Reporting Council Assessment on HKICPA
The Institute has set up the Task Force on the Financial Reporting Council Assessment on the HKICPA to review and address the findings of the Financial Reporting Council from their oversight review of the Institute’s performance in specific functions. Learn more about the task force on the Institute’s website.
Submission to HKEX on increasing the Main Board profit requirement
The Institute issued a submission to Hong Kong Exchanges and Clearing Limited in response to the Consultation Paper The Main Board Profit Requirement.
Sharing of BCGA winners
Representatives of some awardees of the Institute’s Best Corporate Governance Awards have recorded brief videos sharing the value of the Institute’s awards to their organizations, and how they are developing and enhancing their corporate governance and sustainability practices. View the video on the Institute’s website.
Teen Money Management Survey 2020
In celebration of the 15th anniversary of its flagship community project, “Rich Kid, Poor Kid,” the Institute conducted the “Teen Money Management Survey 2020” of primary and secondary students between September and November 2020. Based on the survey results, the Institute has developed a set of teen money management indicators. For details, read the press release and the report on the Institute’s website.
Recently qualified members may join the ICAEW at a special rate
Members who qualified through the Qualification Programme in or after 2012 can apply to join the Institute of Chartered Accountants in England and Wales (ICAEW) at a special rate. Find out more about the scheme here.
Subscription to China Taxation Yearbook 2020
The China Taxation Yearbook 2020 is now available for subscription until 17 March.
Settlement
Hong Kong Institute of Certified Public Accountants settles regulatory proceedings involving a corporate practice and two certified public accountants (practising)
The Hong Kong Institute of Certified Public Accountants has settled regulatory proceedings concerning alleged non-compliance of its professional standards involving Elite Partners CPA Limited and two certified public accountants (practising), namely Chan Wai Nam, William and Edmund Siu.
The complaint concerns Elite’s audit of the consolidated financial statements of a Hong Kong listed entity, China Household Holdings Limited, and its subsidiaries (group) for the year ended 31 December 2013, on which Elite issued an unmodified opinion. Chan was the engagement director and Siu was the engagement quality control reviewer.
The Financial Reporting Council (FRC) had referred its findings on the audit to the Institute. The group’s financial statements included a material amount of exploration and evaluation assets, which were a new line of business for the group. Those assets represented a mineral mining operation in China, for which the group had only obtained exploration right for the mine but the official approvals for exploitation were pending. Elite failed to obtain sufficient evidence and prepare adequate documentation in assessing management’s valuation of the assets, including their assumptions and methodology used in the relevant profit forecasts, notwithstanding that the project had been delayed for many years and there was an indication of a declining market for the minerals to be mined.
In 2013, the listed entity acquired a group of companies that provided virtual design and online trading services. As consideration for the acquisition, the listed entity issued convertible bonds which would be adjusted in each of the next three years with regard to a profit guarantee. Elite adopted inappropriate or inconsistent approaches in assessing management’s valuation of the convertible bonds and profit guarantee which adopted a different measurement date for the bonds and was materially different from an earlier independent valuation obtained by management. Elite also failed to adequately document audit procedures carried out on an intangible asset, being an online trading platform, which was acquired in the acquisition.
As a result of the above:
(a) Elite and Chan failed or neglected to observe, maintain or otherwise apply the following professional standards:
- Hong Kong Standard on Auditing (HKSA) 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Hong Kong Standards on Auditing;
- HKSA 230 Audit Documentation;
- HKSA 500 Audit Evidence; and
- HKSA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures
(b) Siu failed or neglected to observe, maintain or otherwise apply HKSA 220 Quality Control for an Audit of Financial Statements.
(c) Chan and Siu failed or neglected to observe, maintain or otherwise apply the fundamental principle of Professional Competence and Due Care in sections 100.5(c) and 130.1 of the Code of Ethics for Professional Accountants (Code of Ethics).
Settlement agreement: The Council of the Institute has agreed with Elite, Chan and Siu that:
1. Elite, Chan and Siu acknowledge the facts of the case and areas of non-compliance with professional standards;
2. The Institute will cease regulatory proceedings against Elite, Chan and Siu;
3. Elite, Chan and Siu be reprimanded; and
4. Elite, Chan and Siu jointly pay a financial penalty to the Institute of HK$250,000 and make a contribution to the costs of the Institute and the FRC in the amount of HK$314,493.98.
The Council considers that dealing with the matter by way of this settlement will achieve an appropriate resolution without incurring additional expenses and tying up resources in disciplinary proceedings.
The Disciplinary Committee, to which the complaint had been referred, was advised of the terms of the settlement agreement and agreed to the complaint being withdrawn.
Disciplinary findings
Zenith CPA Limited, Cheng Po Yuen, CPA (practising) and Keung Yee Man, CPA
Complaint: Failure or neglect by Zenith to observe, maintain or otherwise apply HKSA 230 Audit Documentation, HKSA 500 Audit Evidence, HKSA 510 Initial Audit Engagements-Opening Balances, HKSA 570 Going Concern and HKSA 710 Comparative Information-Corresponding Figures and Comparative Financial Statements. Failure or neglect by Cheng to observe, maintain or otherwise apply the fundamental principle of professional competence and due care in sections 100.5(c) and 130.1 of the Code of Ethics in conducting his duties as engagement director. Failure by Keung to carry out an adequate engagement quality control review in accordance with HKSA 220 Quality Control for an Audit of Financial Statements, and as a result she neglected to observe, maintain or otherwise apply the fundamental principle of professional competence and due care in sections 100.5(c) and 130.1 of the Code of Ethics.
Zenith expressed an unmodified auditor’s opinion on the consolidated financial statements of China Healthcare Holdings Limited (now known as China Health Group Limited), a Hong Kong listed company, and its subsidiaries (collectively, group) for the year ended 31 March 2011. Cheng was the engagement director and Keung was the engagement quality control reviewer.
The Institute received referrals from the FRC about deficiencies in the audit. The audit team failed to perform sufficient audit procedures and prepare adequate documentation in relation to the classification, recognition and measurement of certain convertible bonds and notes, convertible cumulative preference shares and share options. There were also deficiencies in audit procedures and documentation regarding the accounting treatment of a subsidiary in which the company’s equity interest was below 50 percent, the preferred shares issued by the subsidiary and the related cumulative dividends. In addition, the audit procedures and documentation on assessing the group’s ability to continue as a going concern were inadequate.
Decisions and reasons: Zenith and Cheng were reprimanded. In addition, Zenith, Cheng and Keung were ordered to pay a penalty of HK$150,000, HK$150,000 and HK$10,000, respectively, and to pay costs of the Institute and the FRC totalling HK$225,000 to be shared equally among them. When making its decision, the Disciplinary Committee took into consideration the particulars of the breaches committed in this case, the regulatory records of Zenith and Cheng and the respondents’ personal circumstances.
Yu Ching Hoi, CPA (practising)
Complaint: Failure or neglect to observe, maintain or otherwise apply (i) the fundamental principle of integrity in sections 100.5(a), 110.1 and 110.2 of the Code of Ethics; (ii) the fundamental principle of professional competence and due care in sections 100.5(c) and 130.1 of the Code of Ethics; and (iii) Hong Kong Standard on Quality Control 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements, and being guilty of professional misconduct.
Yu is the sole proprietor of Yu Ching Hoi & Company (practice). He is responsible for the practice’s quality control system and the quality of its audit engagements. In 2015, the practice was subject to an initial practice review which identified deficiencies in its quality control system and an audit engagement selected for review.
A follow-up practice review carried out in 2017 found a number of deficiencies, some of which were the same as or similar to those found at the initial review. The deficiencies concerned audit procedures performed on turnover, expenses and accounts receivable, and Yu’s failure to evaluate the impact of a repeated audit scope limitation on the practice’s acceptance of reappointment as auditor. In addition, Yu failed to establish and maintain an adequate system of quality control to address effective monitoring, independence threats arising from the practice’s provision of accounting services to audit clients, client acceptance and continuance, and engagement performance. Further, in the self-assessment questionnaire that Yu submitted for the practice review, he provided false or misleading answers on the quality control policies and procedures of the practice.
Decisions and reasons: The Disciplinary Committee reprimanded Yu and ordered cancellation of Yu’s practising certificate with no issuance of a practising certificate to him for 20 months with effect from 8 February 2021. In addition, Yu was ordered to pay a penalty of HK$50,000 and costs of disciplinary proceedings of HK$164,448. When making its decision, the committee took into consideration the particulars of the breaches committed in this case and the parties’ submissions and Yu’s conduct throughout the proceedings.
Details of the settlement and disciplinary findings are available at the Institute’s website
