Institute news

Institute survey report highlights further need for ethics-related training

The results of the Institute’s ethics survey, which will be used by the Ethics Committee to inform and evolve the Institute’s ethics strategy and initiatives, is now available for members to read.

The survey was conducted in 2021 to understand the ethical attitudes of professional accountants in Hong Kong and how the Code of Ethics for Professional Accountants (Revised) (the Code) contributes to their performance of professional activities. “The intention was for us to understand how the profession perceives the Code with regards to the relevant regulatory requirements. We were also interested to identify areas that have a higher risk of ethical non-compliance, as it helps us to focus any training we provide and any articles we issue,” Maria Xuereb CPA, Deputy Chair of the Ethics Committee, told A Plus in an ethics feature in the April 2022 issue.

The survey found that 87 percent of respondents considered ethics to be very important in the accounting profession, and 70 percent of them believed ethics-related training should be included in mandatory continuing professional development for Institute members. However, despite the positive attitude towards ethics, less than half of all respondents (41 percent) undertook ethics-related training within the last year.

Members can read the Ethics Survey 2021 report to find out more about the findings, including professional accountants’ perception of ethics, common ethical issues they face at work and their familiarity with the Code.

Non-renewal of MRA with IQAB

The current mutual recognition agreement (MRA) between the Institute and the United States International Qualifications Appraisal Board (IQAB) will expire on 31 December. Refer to the Institute’s website to learn more about the background and implications of the non-renewal of the MRA.

e-Manager discount

The Institute is offering an exclusive 10 percent discount on 10 e-manager courses that have been curated to give members an edge as society gradually recovers from the latest COVID-19 outbreak. The courses cover interpersonal skills, business planning and strategy, and information technology competencies. This offer is available from now till August. Those interested must enrol by 31 August.

Council meeting minutes

The abridged minutes from the March and April Council meeting are now available in the “Members’ area” of the Institute’s website.

Annual meeting with the IRD

The annual meeting between representatives of the Institute’s Taxation Faculty Executive Committee and the Inland Revenue Department took place on 13 May. The meeting minutes of the meeting are available on the Institute’s website.

Resolution by agreement

KPMG, Muk Chung Wing CPA and Wong Sau Ling CPA

Complaint: Failure or neglect by KPMG and Muk 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; failure or neglect by Wong to observe, maintain or otherwise apply Hong Kong Standard on Auditing (HKSA) 220 Quality Control for an Audit of Financial Statements.

KPMG audited the consolidated financial statements of Merry Garden Holdings Limited (now known as China Environmental Technology and Bioenergy Holdings Limited), a Hong Kong listed company, and its subsidiaries for the year ended 31 December 2015. Muk was the engagement partner and Wong was the engagement quality control reviewer.

The Institute received a referral from the Financial Reporting Council (FRC) about deficiencies in the audit. The respondents failed to identify that earnings per share disclosed in the financial statements were misstated. The misstatement had resulted from errors in calculating the weighted average number of shares outstanding after a bonus share issue and an open offer of shares made by the company during the year.

Regulatory action: In lieu of further proceedings, the Council concluded the following should resolve the complaint:

1. The respondents acknowledge the facts of the case and their non-compliance with professional standards;
2. The respondents be reprimanded; and
3. KPMG, Muk and Wong pay an administrative penalty of HK$50,000, HK$35,000 and HK$35,000 respectively to the Institute, and they jointly pay the costs of the Institute of HK$15,000 and of the FRC of HK$127,905.07.

Disciplinary findings

Li Sau Ying CPA (practising)

Complaint: Failure or neglect to observe, maintain or otherwise apply 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; 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; and guilty of professional misconduct.

Li operated a part-time practice in her own name. The practice was subject to its first practice review in February 2018, which identified multiple deficiencies in the practice’s quality control system. In addition, Li was found to have adopted a flawed audit methodology, which demonstrated her failure to carry out audits with professional competence and due care.

The practice review found that Li had inappropriately issued unmodified auditor’s reports on the financial statements of two clients, when modified opinions should have been issued for material omissions and misstatements. She also issued modified auditor’s reports, including a disclaimer of opinion, on the financial statements of certain other clients in a deliberate attempt to avoid performing the necessary audit work.

Decisions and reasons: The Disciplinary Committee ordered the cancellation of Li’s practising certificate with no issuance of a practising certificate to her for 36 months. In addition, Li was ordered to pay costs of disciplinary proceedings of HK$150,000. When making its decision, the committee took into consideration the particulars of the breaches committed in this case, Li’s conduct throughout the proceedings and her personal circumstances.

Li appealed the committee’s decision. Following the Court of Appeal’s dismissal of the appeal in March 2022, the practising certificate of Li was cancelled with effect from 8 April 2022.

Chan Wai Dune, Charles CPA (practising), Teh Delores Eng-Hua CPA (practising), Yau Hok Hung CPA (practising) and CCIF CPA Limited

Complaint: Failure or neglect by Chan and CCIF CPA Limited to observe, maintain or otherwise apply HKSA 200 Objectives and General Principles Governing an Audit of Financial Statements, HKSA 315 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, HKSA 330 The Auditor’s Procedures in Response to Assessed Risks and HKSA 500 Audit Evidence. Failure or neglect by Teh and CCIF CPA Limited to observe, maintain or otherwise apply HKSA 200 (Revised) Objective and General Principles Governing an Audit of Financial Statements, HKSA 500 and HKSA 530 Audit Sampling and Other Means of Testing. Failure or neglect by Yau and CCIF CPA Limited to observe, maintain or otherwise apply HKSA 200 (Revised), HKSA 230 Audit Documentation, HKSA 500 and HKSA 530.

CCIF CPA Limited expressed unmodified auditor’s opinions on the consolidated financial statements of First Natural Foods Holdings Limited (now known as Imperial Pacific International Holdings Limited, a Hong Kong listed company, and its subsidiaries (collectively, group) for each of the years ended 31 December 2005, 2006 and 2007. Chan, Teh and Yau were the engagement directors of the 2005, 2006 and 2007 audits, respectively.

The Institute received a referral from the FRC about deficiencies found in one or more of the audits. The deficiencies included failures to carry out audit planning and risk assessment on revenue, to properly evaluate evidence of revenue obtained from certain parties who had apparently acted only as agents for ultimate customers, and to assess the impact of the main customer’s recurring non-response to audit confirmation requests sent to it. In addition, the audit team failed to ensure the completeness of population of revenue from which samples were drawn for testing, and to adequately document certain audit procedures performed.

Decisions and reasons: The Disciplinary Committee reprimanded the respondents. In addition, Chan, Teh, Yau and CCIF CPA Limited were ordered to pay penalties of HK$200,000, HK$150,000, HK$150,000 and HK$300,000 respectively, and to jointly pay HK$493,881 towards the costs of the Institute and the FRC. When making its decision, the committee considered that the case involved significant deficiencies, and that it reflected the respondents’ lack of professional scepticism in auditing the group’s revenue, as a significant volume of transactions were made with the non-responding customer over a number of years.

Zenith CPA Limited, Cheng Po Yuen CPA (practising) and Yam Wai Man CPA (practising)

Complaint: Failure or neglect by Zenith CPA Limited and Cheng to observe, maintain or otherwise apply HKSA 200 (Clarified) Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Hong Kong Standards on Auditing, HKSA 260 (Clarified) Communication with Those Charged with Governance and HKSA 500 Audit Evidence. Failure or neglect by Yam to observe, maintain or otherwise apply HKSA 220 (Clarified) Quality Control for an Audit of Financial Statements. 

Zenith CPA Limited expressed unmodified auditor’s opinions on the consolidated financial statements of Simsen International Corporation Limited (now known as Huarong International Financial Holdings Limited), a Hong Kong listed company, and its subsidiaries for the financial years ended 30 April 2014 and 2015. Cheng was the engagement director and Yam was the engagement quality control reviewer of the audits.

The Institute received a referral from the FRC concerning the deficiencies related to the audits of (i) assets and liabilities held for distribution to owners and discontinued operations; (ii) impairment assessment of available-for-sale investments; (iii) accounting for a convertible note; and (iv) impairment assessment of loans and accounts receivable and finance leases receivable.

Decisions and reasons: The Disciplinary Committee reprimanded the respondents. The committee further ordered the cancellation of Cheng’s practising certificate, with no issuance of a practising certificate to him for six months, with effect from 19 May 2022. In addition, the committee ordered Zenith CPA Limited, Cheng, and Yam to pay penalties of HK$200,000, HK$200,000 and HK$50,000 respectively, and to jointly pay HK$397,815 towards the costs of the Institute and the FRC. When making its decision, the committee took into consideration the particulars in support of the complaints, the respondents’ personal circumstances and the conduct of the respondents throughout the proceedings.

Settlements

Chu Ngar Yee CPA (practising)

The Institute has settled regulatory proceedings concerning alleged non-compliance of its professional standards involving Chu Ngar Yee CPA (practising).

The complaint concerns deficiencies in KPMG’s audit of the financial statements of a private company for the year ended 31 December 2019, which were identified in the Institute’s practice review of the firm in 2021. KPMG issued an unmodified auditor’s opinion on the financial statements. Chu was the engagement partner of the audit.

The deficiencies related to audit procedures carried out on goodwill included in the financial statements, which was materially misstated. The practice review found that Chu failed to:

• Design and perform audit procedures to obtain sufficient appropriate audit evidence for the goodwill;
• Take steps to resolve inconsistencies in the audit evidence obtained; and
• Obtain reasonable assurance that the entity’s 2019 financial statements as a whole were free from material misstatements.

As a result of the above, Chu failed or neglected to observe, maintain or otherwise apply HKSA 500 Audit Evidence and HKSA 700 Forming an Opinion and Reporting on Financial Statements.

Settlement agreement: The Council has agreed with Chu that:

1. Chu acknowledges the facts of the case and areas of non-compliance with professional standards;
2. Chu be reprimanded; and
3. Chu pays a financial penalty of HK$100,000 and costs of HK$60,000.

Chow Tsz Ki CPA (practising)

The Insitute has settled regulatory proceedings with Chow Tsz Ki, CPA (practising) concerning alleged non-compliance with professional standards.

The complaint concerns deficiencies in Deloitte Touche Tohmatsu’s audit of the financial statements of a private company for the year ended 31 December 2018, which were identified in the Institute’s practice review of the firm in 2020. Deloitte expressed an unmodified auditor’s opinion on the financial statements and Chow was the engagement partner of the audit.

The practice reviewer found that the audit team failed to perform sufficient audit procedures pertaining to the following:

• The company’s advance receipts from customers;
• Certain excess receipts from customers and discounts from suppliers being recognized in income; and
• The impact those receipts and discounts would have on forecasted cash flows, which formed a basis for evaluating goodwill impairment.

As a result of the above, Chow failed or neglected to observe, maintain or otherwise apply HKSA 500 Audit Evidence and HKSA 520 Analytical Procedures.

Settlement agreement: The Council has agreed with Chow that:

• Chow acknowledges the facts of the case and areas of non-compliance with professional standards;
• Chow be reprimanded; and
• Chow pays a financial penalty of HK$75,000 and costs of HK$60,000.

The Institute considers settlements 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 resolution by agreement, disciplinary findings and settlements are available on the Institute’s website.