From left: Eugene Yeung CPA, Convenor of Budget Proposals 2022/23 Sub-Committee, Institute President Loretta Fong CPA (practising); and Sarah Chan FCPA, Chairman of the Taxation Faculty Executive Committee.
Institute responds to the 2022-23 Budget
The Institute welcomes the government’s 2022-23 Budget, announced on 23 February, and believes that the government is actively helping the public cope with the pandemic and tackle the economic downturn.
The budget speech included numerous suggestions made by the Institute in its budget submission, such as tax rebates, tax deductions on residential rental expenses, issuance of consumption vouchers, tax incentives for single family offices, injecting additional funds into the EV-charging at Home Subsidy Scheme, holding an investment summit, and aligning Hong Kong’s tax policy with international tax rules.
The Institute particularly welcomes the introduction of targeted relief measures, including HK$10,000 consumption vouchers, to mitigate the negative impact of COVID-19 on businesses and individuals. “It’s hard to say when the epidemic will be under control, and Hong Kong still has to fight a ‘protracted battle.’ In addition to issuing consumer vouchers to the public, we believe that the government should focus on providing more targeted short-term measures to those currently in need of assistance. This can maximize the societal benefits given the limited resources,” said Loretta Fong CPA (practising), Institute President.
The Institute, however, remains concerned about Hong Kong’s fiscal resilience in the medium to long term. It has long advocated broadening the tax base to mitigate the impact of changes in the economic cycle and unforeseeable shocks on the public purse, as well as an aging population.
Results of first offering of QP Capstone announced
The Institute launched the first offering of the Qualification Programme (QP) Capstone in the December 2021 Session and the results were announced on 25 February. QP students, workshop facilitators and examination panelists shared positive feedback, including that the Capstone helps develop and assess higher-order enabling skills, business acumen and professional judgement through its practical workshop activities and real-life case studies in examinations
Cheung Chun Bong CPA (practising)
Complaint: Failure or neglect to observe, maintain or otherwise apply the fundamental principle of integrity in sections 100.5(a), 110.1 and 110.2 of the Code of Ethics for Professional Accountants (code of ethics), Hong Kong Standard on Quality Control (HKSQC) 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements, Hong Kong Standard on Auditing (HKSA) 230 Audit Documentation, HKSA 500 Audit Evidence, and being guilty of professional misconduct.
Cheung practised in his own name and was responsible for his practice’s quality control system and the quality of its audit engagements. An initial practice review identified a number of deficiencies in the quality control system and audit engagements. In addition, Cheung was found to have created audit working papers and a self-monitoring review report on the quality control system in response to the practice review notification.
Decisions and reasons: The Disciplinary Committee reprimanded Cheung and ordered the cancellation of his practising certificate, with no issuance of a practising certificate to him for 12 months. In addition, Cheung was ordered to pay a penalty of HK$100,000 and costs of the disciplinary proceedings of HK$43,285. The committee further found that Cheung’s lack of integrity and competence to be serious, amounting to professional misconduct.
Law Fei Shing CPA (practising)
Complaint: Failure or neglect to observe, maintain or otherwise apply HKSA 250 Consideration of Laws and Regulations in an Audit of Financial Statements, HKSA 701 Modifications to the Independent Auditor’s Report, section 270 Custody of Client Assets of the code of ethics, and the fundamental principle of professional competence and due care in section 100 of the code of ethics.
Law is the sole proprietor of F.S. Law & Co. The firm audited the financial statements of a private company for the two years ended 31 March 2010 and 2011.
Deficiencies were found in the audits and in Law’s conduct under his professional relationship with the company. Law failed to:
(i) obtain sufficient evidence to justify his concurrence with the company’s adoption of the exemptions under section 141D of the then Companies Ordinance and the financial reporting standard for small- and medium-sized entities as a basis of financial statement preparation, when the company’s holding of a subsidiary at the time would have disqualified it from the exemptions;
(ii) qualify his auditor’s opinion for a limitation of audit scope over provision for impairment loss on an investment;
(iii) obtain sufficient appropriate evidence to support his acceptance of the company’s breach of statutory disclosure requirements applicable to a charge over the company’s assets that was made to secure banking facilities granted to a director-controlled entity;
(iv) segregate funds transferred to him by a shareholder (who was also a director) of the company, and make adequate enquiries to ensure the transfer complied with relevant laws and regulations; and
(v) maintain professional knowledge and skill at the level required to ensure the company received competent professional service.
In the course of the disciplinary proceedings, Law applied for judicial review twice. The proceedings were held over for some five years until the judicial reviews were completed and dismissed by the court.
Decisions and reasons: The Disciplinary Committee reprimanded Law and ordered the cancellation of his practising certificate, with no issuance of a practising certificate to him for 15 months, with effect from 14 January 2022. In addition, the committee ordered Law to pay a penalty of HK$160,000 and costs of disciplinary proceedings of HK$4,943,123. The committee’s order included an enhanced order requiring Law to bear the Institute’s cost in full due to his conduct and resulting delays. The committee noted Law’s breaches were very serious in that they demonstrated a serious lack of understanding of auditing and ethical standards, and the fundamental and basic legal requirements relating to the preparation and presentation of financial statements under the Companies Ordinance. The breaches were aggravated by Law’s limited remorse and lack of candour, as seen in his changing and evolving defences in the course of the disciplinary proceedings, and by his obstructive conduct that resulted in significant delays to the proceedings, substantial wasted costs and the Institute’s need to instruct external counsel to act for it.
Wan Tat Kay Dominic Savio CPA (practising)
The Hong Kong Institute of CPAs has settled regulatory proceedings concerning alleged non-compliance with its professional standards and professional misconduct committed by Wan Tat Kay Dominic Savio CPA (practising).
The matter concerns significant audit deficiencies identified in the Institute’s initial practice review of D. Wan & Company (practice). The practice review covered the practice’s quality control system and the audit of a private entity for the year ended 31 March 2018. Wan was responsible for the quality control system and was the engagement partner of the audit.
The practice reviewer identified significant deficiencies that showed (i) Wan’s inadequate audit methodology for the audit engagement; (ii) Wan’s failure to perform adequate audit procedures, and/or prepare adequate audit documentation, on a number of material items in the financial statements: unlisted investment, inventories, sales and purchases; (iii) substandard auditor’s report on the financial statements issued by Wan. In addition, the practice reviewer found deficiencies concerning the practice’s monitoring process and compliance with the Institute’s ethical requirements on independence.
As a result of the above, Wan failed or neglected to observe, maintain or otherwise apply:
(i) The fundamental principle of professional competence and due care under sections 100.5(c) and 130.1 of the code of ethics;
(ii) HKSQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements; and
(iii) HKSA 230 Audit Documentation, HKSA 500 Audit Evidence, and a number of other HKSAs.
The multiple deficiencies identified also demonstrated Wan’s blatant disregard to professional standards, amounting to professional misconduct.
Settlement agreement: The Council of the Institute has agreed with Wan that:
- Wan acknowledges the facts of the case and areas of non-compliance with professional standards;
- Wan be reprimanded;
- Wan pays a financial penalty of HK$80,000 and costs of HK$50,000; and
- Wan undertakes to cease providing audit services for a period of one year.
The Institute considers a settlement on the agreed basis to be in the public interest. In the circumstances, the Institute is satisfied that there is no purpose to be served in pursuing disciplinary proceedings.
Details of the disciplinary findings and settlement are available on the Institute’s website.