New guidance from the Forensics Interest Group Management Committee on commonly seen frauds
As COVID-19 continues to disrupt lives, opportunistic criminals are using the disruption to exploit vulnerable and unwary members of the public. This means that everyone, including members, needs to be more alert than ever to the risk of fraud. To help people to identify and avoid commonly seen deceptions and frauds, the Institute’s Forensics Interest Group Management Committee has released a new simple guide, Combatting Fraud, available on the Institute’s website.
Exemption from compulsory quarantine arrangement
CPAs (practising), partners, directors or employees of registered practice units who are required to travel to the Mainland to conduct audit work for companies listed in Hong Kong with Mainland operations may apply for exemption from the compulsory quarantine arrangement. The Institute is providing administrative support for the scheme, and has sent public interest entity auditors an email, information paper and forms for their completion, available through the Institute’s COVID-19 – CPA Information Centre webpage.
HKICPA career portal launched
The Institute launched a new career portal, connecting university students interested in joining the profession with accounting firms. The portal also features career and job hunting advice, the latest updates on the accounting profession, and insightful videos.
Technical enquiry service for SMPs launched
The Institute’s Small and Medium Practices Committee launched Members-Help-Members (M-H-M), a new technical enquiry service for small- and medium-sized practices (SMPs) who wish to obtain guidance and comments on technical issues from their peers. Any enquiry submitted to M-H-M will be considered by the committee’s Working Group on Technical Issues on a pro-bono basis and may be addressed at a sharing session. Sharing sessions will be organized on a quarterly basis. SMPs can submit a technical enquiry to M-H-M through an online enquiry form. Those who have questions regarding the initiative can send an email to ms@hkicpa.org.hk.
Council meeting minutes
The abridged minutes from the April Council meeting are now available for members to read. They can be found in the “Members’ area” of the Institute’s website.
Institute’s newsletters revamped
The Institute’s newsletters and email templates have been updated to better connect with and inform members, students and other stakeholders. The e-circular, TechWatch, CPD Planner and Lifestyle emails have been replaced with newly designed and themed newsletters. There is also a new monthly newsletter called “CPA Pulse,” which presents the latest news and happenings. The Institute will collect feedback in the future to use for further enhancements.
Resolutions by Agreement
Lam Pik Wah, CPA (practising), Yeung Kit Kam, Lesley, CPA (practising) and BDO Limited
Complaint: Failure or neglect by Lam and BDO to observe, maintain or otherwise apply Hong Kong Standard on Auditing (HKSA) 230 Audit Documentation, HKSA 500 Audit Evidence and HKSA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures. Failure or neglect by Yeung to observe, maintain or otherwise apply HKSA 220 Quality Control for an Audit of Financial Statements.
BDO audited the consolidated financial statements of China Energy Development Holdings Limited, a Hong Kong listed company, and its subsidiaries (collectively, group) for the year ended 31 December 2013 and expressed an unmodified auditor’s opinion. Lam was the engagement director and Yeung was the engagement quality control reviewer (EQCR).
The group acquired a subsidiary in Mainland China which had entered into a project for exploration, development and production of oil and natural gas in the Mainland. Approval to begin development of the project had not been obtained from the Chinese government. However, the group’s interest in the project and the exploration costs incurred were recognized as assets in the financial statements.
The audit team engaged an independent valuer to assess the valuation of the project that had been undertaken by management. The working papers showed that the audit team did not perform adequate procedures, or prepare adequate documentation, in respect of assessing the independent valuer’s and management’s assumptions on forecast production and sales volumes, expected selling price of products and discount and risk premium rates used in the valuation.
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. Each of the respondents pay an administrative penalty of HK$25,000 and they jointly pay costs of the Institute and the Financial Reporting Council totalling HK$172,537.50.
Fok Joyce Sing Yan, CPA (practising)
Complaint: Failure or neglect to observe, maintain or otherwise apply HKSA 220 Quality Control for an Audit of Financial Statements.
Fok was the EQCR in the audit of the consolidated financial statements of Ceneric (Holdings) Limited (now known as TFG International Group Limited), a Hong Kong listed company, and its subsidiaries (collectively, group) for the year ended 31 December 2014 undertaken by a corporate practice that has now been deregistered.
The group entered into a very substantial acquisition during the year, and the assets acquired included a hotel in Mainland China of which the right to operate, manage and maintain had been granted to a hotel management company.
The audit engagement team failed to appropriately assess the audit risks associated with the transaction and hence the planned audit procedures were inadequate to address the risks of material misstatement in respect of the acquisition. Consequently, the audit engagement team failed to properly evaluate the fair values of the assets acquired. They also failed to identify the non-compliance with accounting requirements in relation to the gain on bargain purchase and the erroneous classification of the hotel. Those areas were material and involved significant judgements. As EQCR, Fok failed to properly perform an objective evaluation of the significant judgements made by the audit engagement team and the conclusions reached in formulating the auditor’s report.
Regulatory action: In lieu of further proceedings, the Council concluded the following action should resolve the complaint:
1. Fok acknowledge the facts of the case and her non-compliance with professional standards;
2. Fok be reprimanded; and
3. Fok pay an administrative penalty of HK$50,000 and costs of the Institute and the Financial Reporting Council totalling HK$50,403.
Disciplinary finding
Lo Hung Yan, CPA (practising)
Complaint: Failure or neglect to observe, maintain or otherwise apply the fundamental principles of integrity, and professional competence and due care in sections 100.5(a), 100.5(c), 110.2 and 130.1 of the Code of Ethics for Professional Accountants; Hong Kong Standard on Assurance Engagements 3000 (Revised) Assurance Engagements Other than Audits or Reviews of Historical Financial Information and Related Conforming Amendments; HKSA 500 Audit Evidence, HKSA 600 Special Consideration – Audits of Group Financial Statements (Including the Work of Component Auditors), HKSA 700 Forming an Opinion and Reporting on Financial Statements; and 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 Institute concluded a practice review on Antonio & Clayton CPA Limited. Lo was the former managing director of the practice and responsible for its quality control system. The practice review found that Lo colluded with a client to backdate an auditor’s report in order to mislead the Inland Revenue Department into believing that a valid auditor’s report existed on the audit report date, even though the audit had not been completed.
The practice review also revealed multiple deficiencies in the assurance and audit engagements carried out on an insurance broker and two other private companies. Those deficiencies demonstrated that Lo failed to ensure the practice had established and maintained a quality control system. They also cast serious doubts on Lo’s ability to maintain the level of professional competence and due care expected of him to ensure his clients received competent professional service.
Decisions and reasons: The Disciplinary Committee reprimanded Lo and ordered the cancellation of his practising certificate, with no issuance of a practising certificate to him for 24 months, with effect from 20 May 2020. In addition, Lo was ordered to pay a penalty of HK$70,000 and costs of disciplinary proceedings of HK$67,776.
Details of the Resolutions by Agreement and disciplinary finding are available at the Institute’s website.
