Extraordinary general meeting 2018
The Institute held an extraordinary general meeting (EGM) on 2 March in response to the request of more than 100 members. During the EGM, members in attendance, and by proxy, voted on three resolutions. All resolutions were carried.
The Institute expressed gratitude to members for expressing their views through the EGM. “The Council has listened and will take on board members’ opinions,” said Eric Tong, the Institute’s President. “Importantly, we will take measures to enhance transparency and improve member engagement. All Council members will work together in pursuit of our common objective of building an eminent profession to serve the business community.”
Members can find the full results of the votes inside the “Members’ area” of the “EGM 2018” section of the Institute website.
Release of Council minutes
The Council has approved the decision to make available to members minutes from Council meetings in order to improve the transparency of the Institute and its communications with members. The minutes of January is now available for members and can be found in the “Members’ area” section of the Institute’s website.
Institute appears before LegCo Bills Committee on Financial Reporting Council (Amendment) Bill 2018
On 20 March, Chief Executive and Registrar Raphael Ding appeared before the Legislative Council Bills Committee on the Financial Reporting Council (Amendment) Bill. He criticized various aspects of the bill, which the Institute views to be overcomplicated and incomplete, addressing separate parts of the system – in no particular order – without giving a clear picture of the whole. Ding highlighted five key areas which needed to be addressed.
Firstly, how the new system of co-managing listed companies by the Financial Reporting Council (FRC) and the Institute would be implemented including the organizational structure of the FRC and what penalties it could apply. He stated that the memoranda of understanding between the FRC and Institute and the FRC and auditors outside Hong Kong should be disclosed.
Secondly, he queried the monitoring and regulating of auditors from outside Hong Kong, as some 70 percent of Hong Kong’s stock market capitalization is overseas companies – mainly on the Mainland. He commented that if the FRC did not have a measure to monitor these firms then the 30 percent it could cover (some 45 auditors located in Hong Kong) would not greatly improve Hong Kong’s audit regime.
Thirdly, Ding was concerned by the high proposed expenditure of the FRC. Noting that the recent threefold increase in its estimated annual expenditure from HK$30 million to HK$99 million was five times what the Institute pays for similar activities. He suggested that as the FRC is about investors’ interests, they should be the ones to fund the system.
Fourthly, he reported the Institute’s concern with the proposed composition of the FRC. The government and the FRC wish to meet European Commission equivalence, namely an organization staffed by non-practitioners. It is the view of the Institute that equivalence does not require the expansion of the FRC, but that the Securities and Futures Commission could instead undertake this role.
Finally, he wants the government to include its promised policy commitments within the bill. The Institute would like to see the bill include the guidelines on penalties and disciplinary actions the government has promised to release before the bill is passed, creating a known regulatory environment.
Members can view a recording of the committee, read the Institute’s submission and the speech given by the Chief Executive (in Chinese) in the “FRC Bill developments” section of the Institute’s website.
Institute welcomes Hong Kong budget direction, questions specific measures
The Hong Kong government’s 2018- 19 budget, announced by Financial Secretary Paul Chan on 28 February, offers a positive outlook for the near and medium-term, however it lacks more specific measures to enhance the competitiveness of the tax system, and to help all in the wider community including low-income households and small-and medium-sized enterprises (SMEs), according to the Institute.
While being supportive of the budget’s broader direction of investing in the future, the Institute believes clarifications are needed. “We see the budget as carrying forward the policies in Chief Executive Carrie Lam’s first policy address last October. However, we hoped the Financial Secretary would offer additional specific measures and a clearer insight into policy implementation,” said So Kwok Kay, Chairman of the Institute’s Taxation Faculty Executive Committee.
The Institute noted that the government could do more to provide SMEs direct access to government funding. While there were many measures offered to promote research and development activities among Hong Kong companies and encourage innovation, the Institute questioned whether the use of existing funds was the best way to drive change.
The Institute appreciated the proposals by the financial secretary to widen tax bands from HK$45,000 to HK$50,000, increase the number of tax bands from four to five, and the increased support for electric private vehicles – specifically the higher ceiling on the waiver of first registration tax when owners trade an internal combustion engine car for a new electric car.
The Institute was disappointed, that the financial secretary did not propose a long-recommended broader review of the tax system. Members can read more about our views of the budget in the thought leadership column from Curtis Ng, Convenor of Budget Proposals Sub-committee here.
The Institute’s Standard Setting Department with counterparts from the Accounting Standards Board of Japan
Institute’s Standard Setting Department meet their Japanese counterparts
The Institute’s Standard Setting Department met with their counterparts from the Accounting Standards Board of Japan (ASBJ) on 5 and 6 March in Hong Kong – the first bilateral meeting between both bodies.
They discussed their projects on developing the accounting for group and the accounting for virtual currencies, for which there are no global accounting standards. They also exchanged views on future opportunities to cooperate and shared insights on today’s accounting challenges and the application of new standards.
They also agreed to further such bilateral meetings. Shelley So, the Institute’s Chair of the Financial Reporting Standards Committee, said, “the Institute is pleased to host the first bilateral meeting and foster a closer relationship with the ASBJ. Our standard-setting bodies and stakeholders have a lot in common, and it is with that common interest that I believe both bodies can help and inspire each other in developing and implementing higher quality standards.”
Atsushi Kogasaka, Vice Chairman of the ASBJ, stated, “I would like to express my appreciation to the Institute hosting for our first bilateral meeting. It was a wonderful opportunity for us to foster better understanding of our respective activities and have productive discussions on technical agendas. I believe it is important to maintain our relationship to contribute to the development of high-quality financial reporting.”
HKFRS 17 Insurance Contracts approved
Last month, the Institute approved Hong Kong Financial Reporting Standard (HKFRS) 17 Insurance Contracts, a new accounting standard for insurance contracts that accounts for insurers’ liabilities and revenues in a way that strengthens protection for investors. HKFRS 17, the equivalent of IFRS 17 issued by the International Accounting Standards Board, is effective 1 January 2021.
“HKFRS 17 ensures that Hong Kong’s insurance industry remains at the forefront of global accounting best practices and that Hong Kong maintains its position as a world’s leading financial centre. More importantly, HKFRS 17 better reflects the insurers’ liabilities and financial wellness by using more up-to-date market inputs and comparable data.
This is important for investors assessing the long-term continuity of the company, hence offering better protection to investors and enhancing market efficiency,” said Christina Ng, Director of Standard Setting at the Institute.
The Institute has been working closely with stakeholders in the local insurance industry to shape IFRS 17 prior to its adoption, and will continue to speak up for and assist Hong Kong’s insurance industry at the implementation stage.
The Institute has created an implementation support group to provide enhanced training and support on the new standard. More details are available on the “Technical resources” section of the Institute’s website.
Spring cocktail
Guests from the Hong Kong Special Administrative Region and the Central governments, businesses, and regulators joined the Institute’s Council and committee members to celebrate the year of the dog at the spring cocktail reception on 23 February.
Institute President Eric Tong (centre), Vice President Johnson Kong (to the left of the President), Chief Executive & Registrar Raphael Ding (to the right of the President) and senior management at the Guangzhou cocktail reception in March
Guangzhou cocktail reception
The Institute hosted a cocktail reception in Guangzhou on 7 March where the President, Vice-President and senior management met with more than 120 guests from Guangdong authorities, stakeholders and members.
“Rich Kid, Poor Kid” family storytelling event
Family storytelling event
On 3 March, 52 parents and 65 children enjoyed a free “Rich Kid, Poor Kid” family storytelling event at the Institute as part of “Hong Kong Money Month 2018.” Attendees heard the story of May Moon, teaching children the importance of money management and fiscal responsibility.
Disciplinary findings
Mak Wai Man, CPA
Complaint: Mak was convicted of offences involving dishonesty. She was also in breach of the fundamental principle of Integrity under sections 100.5(a) and 110.2 of the Code of Ethics for Professional Accountants.
Mak was convicted of three counts of offences under section 9 of the Theft Ordinance (Cap. 210) after she forged the signature of her employer’s directors and drew a cheque in her own favour. The company dismissed her. Subsequently, Mak provided false information about her professional qualifications and work experience to another employer. That employer unknowingly submitted the false information in an Application Proof to the Hong Kong Stock Exchange for listing purposes. Mak failed to declare to the Institute that she had criminal convictions in the Institute’s annual membership renewal.
Decisions and reasons: Mak was removed from the register of CPAs for five years with effect from 11 March 2018 and was ordered to pay costs of the disciplinary proceedings of HK$72,446. When making its decision, the committee took into consideration the particulars in support of the complaints, Mak’s personal circumstances and her conduct throughout the proceedings.
Seto Man Fai, CPA (practising)
Complaint: Failure or neglect to observe, maintain or otherwise apply professional standards issued by the Institute and being guilty of professional misconduct.
Seto was the managing director of a corporate practice, Parker Randall CF (H.K.) CPA Limited, which is now de-registered. The corporate practice audited the consolidated financial statements of three Hong Kong listed companies, namely Grand TG Gold Holdings Limited, Global Green Tech Group Limited and Sage International Group Limited, for financial periods ended in 2010 and 2011. Seto was the engagement director of those audits.
The Institute received several referrals from the Financial Reporting Council (FRC) about breaches of auditing standards in the relevant audits and the conduct of Seto during the FRC’s enquiry. Seto failed to provide any working paper for the audits, claiming they were either lost or withheld by a third party. He repeatedly gave inconsistent and unbelievable explanations to the FRC as to circumstances in which the working papers were unavailable. There were irregularities found in the audits in relation to accounting for an acquisition, use of the going concern basis, and failure to appoint an engagement quality control reviewer.
Decisions and reasons: Seto was removed from the register of CPAs for five years with effect from 22 March 2018 and was ordered to pay HK$523,697.20 towards costs of the Institute and the FRC. When making its decision, the committee observed that this was a serious case of professional misconduct, the audits of listed companies clearly involved public interest, and the complaints involved conduct whereby the respondent hindered and unnecessarily prolonged the investigation by the FRC. The committee further noted Seto admitted the complaints at a late stage when preparation for the substantive hearing had begun.
Tam Tak Kuen, Alfred, CPA and Alfred T.K. Tam & Co.
Complaint: Failure or neglect to observe, maintain or otherwise apply the fundamental principle of Professional Behavior of the Code of Ethics for Professional Accountants.
Tam was the sole proprietor of Alfred T.K. Tam & Co., a firm which is now de-registered. In the period from February 2012 to August 2016, Tam and the firm breached their employer’s obligation to make provident fund contributions for employees under the Mandatory Provident Fund Schemes Ordinance on three occasions. The breaches affected a number of employees and, on one occasion, occurred over a period of approximately 28 months. As a result of the breaches, Tam and the firm were ordered by relevant authorities to pay fines totalling HK$127,000 in addition to contributions in arrears and surcharges.
Decisions and reasons: The respondents were reprimanded and ordered to pay jointly and severally a penalty of HK$414,463.40 and costs of the disciplinary proceedings of HK$32,781. When making its decision, the committee took into consideration the particulars in support of the complaint and the respondents’ conduct throughout the proceedings which showed a lack of remorse. The committee noted the seriousness of the respondents’ failure to meet their statutory obligation on multiple occasions and the possibility of them committing the offence again in future. In the circumstances, the committee considered a heavy sanction should be imposed to deter members from bringing disrepute to the profession and to maintain public confidence in the profession.
Tso Yin Yee, CPA (practising)
Complaint: Failure or neglect to observe, maintain or otherwise apply professional standards issued by the Institute and being guilty of professional misconduct.
Tso is the sole proprietor of Integrity CPA Limited (formerly known as ADGS (CPA) Limited) (the practice) and is responsible for the practice’s quality control system and the quality of its assurance engagements. When carrying out a practice review, the reviewer found that the practice failed to established and maintain an effective system of quality control. In addition, the reviewer found significant deficiencies in the practice’s audit and assurance engagements.
Decisions and reasons: The practising certificate issued to Tso is to be cancelled with effect from 6 March 2018 and no practising certificate shall be issued to her for 16 months. In addition, Tso was ordered to pay the costs of disciplinary proceedings of HK$38,665. In making its decision, the Disciplinary Committee took into consideration the particulars in support of the complaint, the parties’ submissions, the conduct of Tso throughout the proceedings and her personal circumstances. They also noted that significant public interest was at stake in the compliance audit of a regulated company and the sanction should reflect this.
Details of the disciplinary findings are available at the Institute’s website: www.hkicpa.org.hk
