Institute news

Consultation paper issued on the Hong Kong Business Valuation Quality initiative

The Hong Kong Business Valuation Quality Initiative Task Force – of which the Institute is an active member – last month issued its consultation paper on the proposed framework to enhance business valuation standards and professionalism in the city. The proposed framework aims to improve practices by promoting competence and allowing only appropriately qualified professionals to perform business valuations for listed and private companies.

The task force, led by the International Valuation Standards Council, was set up earlier this year to investigate ways to improve business valuation quality in Hong Kong.

Comments to the paper should be submitted to comments@ivsc.org and BVQI.comments@hkicpa.org.hk by 15 November. More details on the consultation are on the Institute’s website.

Cross-straits, Hong Kong and Macau Accounting Profession Conference 2019

The Institute is hosting the annual Cross-straits, Hong Kong and Macau Accounting Profession Conference 2019 on 28 October at the Kowloon Shangri-La Hotel. The theme this year is “數碼時代 – 職業化、 信息化” (digital transformation). The conference is an important annual event for the accounting profession from across Greater China, enabling attendees to share knowledge on the latest developments in the profession and to network. More than 300 attendees are expected from the four jurisdictions. Registration details are available on the Institute’s website.

PAIB Conference 2019 to focus on the era of digital banking

Members can now register for the Institute’s annual professional accountants in business conference, which will take place on 21 September.

With the theme “Digital & Virtual Banking: tomorrow’s banking today?” the event will feature a panel of speakers discussing the opportunities and challenges created by the era of smart banking. Topics such as what to expect from virtual banking and how businesses can take advantage of the environment of digital and virtual banking will also be covered.

Confirmed speakers include representatives from DBS, Fusion Bank, McKinsey & Company, Moore Stephens, Ping An OneConnect Bank, Office of the Privacy Commissioner for Personal Data, Standard Chartered and WeLab Digital. Those interested should enrol by 13 September. Registration details are available on the Institute’s website.

Seminar series on IRD’s transfer pricing DIPNs

The Institute’s Taxation Faculty is organizing a number of seminars on the Inland Revenue Department’s recently released Departmental Interpretation and Practice Notes on transfer pricing. The seminars run from September to November. More information about them can be found on the Institute’s website.

Q&As on revenue recognition now available

The Institute has issued new questions and answers (Q&As) for matters related to the revenue recognition considerations in the engineering and construction industries under HKFRS 15 Revenue from Contracts with Customers. They can be found on the Institute’s website. The Q&As were developed by the Financial Reporting Standards Committee of the Institute and are for general reference only.​

Council minutes

Council minutes from the May Council meeting are now available to read. They can found in the Members’ area on the Institute’s website.

Resolution by Agreement

Lie Kong Sang, CPA and PricewaterhouseCoopers

Complaint: Failure or neglect to observe, maintain or otherwise apply Hong Kong Standard on Auditing (HKSA) 230 Audit Documentation, HKSA 330 The Auditor’s Procedures in Response to Assessed Risks and HKSA 500 Audit Evidence.

PricewaterhouseCoopers (PwC) audited the consolidated financial statements of Modern Beauty Salon Holdings Limited, a Hong Kong listed company, and its subsidiaries (collectively, group) for the years ended 31 March 2006 to 2009 and expressed unmodified auditor’s opinions. Lie was the engagement partner for those audits.

The group entered into prepaid service contracts with customers and recognized the unutilized portion of prepayments as revenue when customers changed the service type or transferred the unutilized service treatments to other customers before contract expiry, where the underlying service treatments had not yet been delivered. This was contrary to Hong Kong Accounting Standard (HKAS) 18 Revenue. The respondents failed to design and perform procedures to appropriately test that revenue recognition in relation to change in services or transfer of prepaid contracts was in compliance with the relevant accounting standard, and failed to document their evaluation of management’s discussion with the group’s legal advisors concerning the legal and contractual position of prepaid contracts.

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

1. The respondents acknowledge the facts of the case and their non-compliance with the relevant professional standards;
2. They be reprimanded; and
3. Lie and PwC each pay an administrative penalty of HK$50,000, and jointly pay costs of the Institute and the Financial Reporting Council (FRC) totalling HK$117,599.

Disciplinary findings

Chan Chi Kei, Ronald, CPA (practising), Ho Yiu Hang, Ricky, CPA (practising) and Asian Alliance (HK) CPA Limited

Complaint: Failure or neglect by Chan and Asian Alliance to observe, maintain or otherwise apply 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 250 Consideration of Laws and Regulations in an Audit of Financial Statements, HKSA 500 Audit Evidence, HKSA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures, HKSA 620 Using the Work of an Auditor’s Expert and HKSA 700 Forming an Opinion and Reporting on Financial Statements. Failure or neglect by Ho to observe, maintain or otherwise apply HKSA 220 Quality Control for an Audit of Financial Statements. Failure or neglect by Chan and Ho to observe, maintain or otherwise apply sections 100.5(c) and 130.1 of the Code of Ethics for Professional Accountants.

Asian Alliance audited the consolidated financial statements of Natural Dairy (NZ) Holdings Limited, a Hong Kong listed company, and its subsidiaries for the year ended 31 May 2011. Chan was the engagement director and Ho was the engagement quality control reviewer of the audit.

The Institute received a referral from the FRC about audit irregularities. The consolidated financial statements included the company’s equity interest in a foreign company which had acquired several dairy farms in New Zealand. The foreign company’s request for the local authority’s retrospective consent to its acquisition of the dairy farms was refused. As a result, the farms were subject to a risk of compulsory disposal by court order.

In their audit, the respondents failed to perform sufficient procedures to address the potential impact of the above circumstances on the investment, including impairment assessment. The respondents also failed to evaluate whether proper disclosure about the matter had been made in the financial statements.

In addition, the respondents did not prepare sufficient documentation of audit procedures performed on revenue recognized in the financial statements.

Decisions and reasons: The respondents were reprimanded and were ordered to pay jointly a penalty of HK$150,000 and costs of the Institute’s disciplinary proceedings and the FRC totalling HK$221,501.

Mo Kong Fung, CPA

Complaint: Failure or neglect to observe, maintain or otherwise apply the fundamental principle of integrity under sections 100.5(a) and 110, and the fundamental principle of professional competence and due care under sections 100.5(c) and 130.1 of the Code of Ethics for Professional Accountants; 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; and being guilty of professional misconduct.

Mo is the sole proprietor of Lacubus CPA, which was subject to its first practice review in early 2017. Mo was responsible for Lacubus’ quality control system and the quality of its audit engagements.

The practice reviewer identified significant deficiencies in Lacubus’ system of quality control and in two of its audit engagements. In addition, Mo had deliberately attempted to mislead the practice reviewer by creating new working papers or changing other working papers after the audit report date, and making untrue statements in a meeting with the reviewer. He also falsely or recklessly provided untrue answers in a self-assessment questionnaire submitted in relation to the practice review.

Decisions and reasons: The Disciplinary Committee ordered the name of Mo be removed from the register of CPAs for 12 months, and a practising certificate shall not be issued to him for two years with effect from 25 July 2019. In addition, Mo was reprimanded and ordered to pay a penalty of HK$80,000 and costs of the disciplinary proceedings of HK$44,053. When making its decision, the committee took into account the particulars of the breaches committed in this case, the parties’ submissions, and the respondent’s conduct throughout the proceedings.

Wong Yuk Ming, Aaron, CPA (practising)

Complaint: Failure or neglect to observe, maintain or otherwise apply the fundamental principle of integrity under sections 100.5(a) and 110.1, and the fundamental principle of professional competence and due care under sections 100.5(c) and 130.1 of the Code of Ethics for Professional Accountants. Further, the Disciplinary Committee found Wong to have breached HKSQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements. In view of the severity of the non-compliances, the committee also found Wong guilty of professional misconduct.

Wong was the sole proprietor of Aaron Wong & Co. and was responsible for the firm’s audit engagements and quality control system. The firm was selected by the Institute for its first practice review in August 2017.

The practice review revealed deficiencies in the firm’s quality control system as well as Wong’s professional competence and integrity. Wong was found to have furnished answers in an “Audit Health Screening Checklist” either falsely or recklessly, and created working papers which misled the reviewers and rendered the practice review process ineffective. In addition, Wong failed to ensure the firm had maintained an adequate quality control system for engagement performance, independence and acceptance and continuance of client relationships. Findings of insufficient audit evidence in one audit engagement and Wong’s flawed concept about audit documentation raised serious questions as to whether he had carried out his work with professional competence and due care.

Decisions and reasons: The committee reprimanded Wong and ordered the cancellation of his practising certificate with no issuance of a practising certificate to him for 18 months with effect from 2 August 2019. In addition, Wong was ordered to pay a penalty of HK$50,000 and costs of disciplinary proceedings of HK$47,642. The committee noted that Wong’s conduct raises serious doubts about his integrity, and demonstrates a blatant and intentional disregard of the Institute’s ethical and professional requirements. They added that the manner in which he conducted the audit engagements could undermine public confidence in the standards of the profession and damage its reputation.

Woo Yuen Fai, CPA (practising)

Complaint:  Failure or neglect to observe, maintain or otherwise apply HKSA 220 Quality Control for an Audit of Financial Statements.

​Woo was the engagement quality control reviewer in an audit carried out by UC CPA (Practising) Limited on the consolidated financial statements of South Sea Petroleum Holdings Limited, a Hong Kong listed company, and its subsidiaries for the year ended 31 December 2015. The audit was selected for review in 2016 as part of the Institute’s practice review.

The practice reviewer identified significant audit deficiencies in the areas of impairment assessment of investment property and prepayments of production expenses. The two areas were material. Woo failed to perform an effective engagement quality control review of them to evaluate the significant judgements made and conclusions reached by the audit team.

Decisions and reasons: The Disciplinary Committee reprimanded Woo and ordered him to pay a penalty of HK$70,000 and costs of the disciplinary proceedings of HK$42,960. When making its decision, the committee took into account the particulars of the breaches committed in this case, the respondent’s conduct throughout the proceedings and his personal circumstances.

HLB Hodgson Impey Cheng Limited, Yu Chi Fat, CPA (practising) and Shek Lui, CPA (practising)

Complaint: Failure or neglect by HLB to observe, maintain or otherwise apply HKSA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures and HKSA 700 Forming an Opinion and Reporting on Financial Statements. Failure or neglect by Yu and Shek to observe, maintain or otherwise apply sections 100.5(c) and 130.1 of the Code of Ethics for Professional Accountants.

HLB audited the consolidated financial statements of HMV Digital China Group Limited (formerly known as China 3D Digital Entertainment Limited), a Hong Kong listed company, and its subsidiaries for the year ended 30 June 2013. Yu was the engagement director and Shek was the engagement quality control reviewer of the audit.

The Institute received a referral from the FRC about irregularities in the audit. There was impairment of the company’s available-for-sale listed investment as a result of a significant decline in fair value shown by a drop in the investee’s quoted market price. The company did not record an impairment loss on the investment, contrary to HKAS 39 Financial Instruments: Recognition and Measurement. In their audit, the respondents compared the investment cost to the value of the company’s share of the investee’s net assets, instead of its quoted market price, and concluded that no impairment loss was required to be recorded. As a result, they failed to report the non-compliance in the auditor’s report.

Decisions and reasons: The respondents were reprimanded and were ordered to jointly pay a penalty of HK$60,000 and costs of the Institute and the FRC totalling HK$117,055.40. When making its decision, the Disciplinary Committee noted that the breaches were mitigated by a diversity in practices regarding the application of the relevant accounting standard and the fact that the respondents had obtained independent professional valuations of the investment.

Details of the disciplinary findings and guidelines for the Resolutions by Agreement are available at the Institute’s website: www.hkicpa.org.hk.