Remembering Edward Chow, JP
The sudden passing of Edward Chow, JP, Past President of the Institute, was a shock to the community. Whether as President of the Institute, Council member, Chairman of the Professional Accountants in Business (PAIB) Committee and the Corporate Governance Committee, Deputy Chair of the Ethics Committee and the Mainland Affairs Committee, or serving on the International Federation of Accountants’ PAIB Committee, in everything Edward did he brought his formidable energy and wisdom in realizing his vision of promoting the interests of PAIBs and corporate governance.
Edward was first elected to Council in 1997, and served as vice-president in 2002, and 2004, before becoming president in 2005. He had the foresight and was instrumental in the acquisition of the Institute’s Wu Chung House office premises. He also spearheaded the Fifth Long Range Plan Task Force and played a leading role in setting up of the Best Corporate Governance Disclosure Awards, which went on to become the Best Corporate Governance Awards.
Strategic Plan 2020-2022
The Institute recently released its Strategic Plan 2020-2022. Titled Building Trust in Our Profession, the plan sets out its vision, strategic objectives and related initiatives. The plan is a result of collaborative efforts from Council and committee members, management and many members who have provided their views.
COVID-19 survey report
The Institute conducted a survey of executives and senior-and middle-management level members in business and practice, about the impact on their organizations of the COVID-19 pandemic. The survey investigates how the pandemic posed challenges to the accounting profession, how it changed how organizations operate, and the impact on the finance function. The respondents also discussed the support they need from the Institute. The survey report can be found here. Read more about the survey in this month’s thought leadership.
Members-Help-Members sharing session
At the first Members-Help-Members sharing session on 10 July, the Institute’s Small and Medium Practices Committee’s Working Group on Technical Issues will provide their insights and comments to the technical enquiries received from small and medium practices. Join them to hear on the topics including accounting and financial reporting, auditing and assurance, ethics and regulation, taxation and more.
ICAEW membership for younger members offer
The Institute of Chartered Accountants in England and Wales (ICAEW) is inviting Institute members who are graduates of the Qualification Programme and who joined the Institute after 2011 to apply for ICAEW membership at a special rate. Find out more at icaew.com/8reasons.
Council meeting minutes
Resolution by Agreement
Li Wing Sum, Steven, CPA (practising), Tong Yat Hung, CPA (practising) and Cheng & Cheng Limited
Complaint: Failure or neglect by Li and Cheng & Cheng to observe, maintain or otherwise apply Hong Kong Standard on Auditing (HKSA) 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Hong Kong Standards on Auditing, HKSA 300 Planning an Audit of Financial Statements, HKSA 330 The Auditor’s Responses to Assessed Risks, 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 Tong to observe, maintain or otherwise apply HKSA 220 Quality Control for an Audit of Financial Statements.
Cheng & Cheng was the auditor which expressed an unmodified auditor’s opinion on the consolidated financial statements of Natural Dairy (NZ) Holdings Limited, a Hong Kong-listed company and its subsidiaries (collectively, group) for the year ended 31 May 2012. Li was the engagement director and Tong was the engagement quality control reviewer.
In 2010, the company acquired an equity interest in a foreign company which held several dairy farms in New Zealand. Consideration for the investment was settled with convertible notes issued by the company. Subsequently, the local authority in New Zealand refused the company’s application for retrospective consent for the acquisition. Following this, in the 2011/12 fiscal year, the group changed its business model to operating a dairy business on leased farmlands, amending the terms of the consideration, and appointing a manager for the dairy operations.
In their audit, the respondents failed to perform sufficient appropriate procedures to address the risks of material misstatement associated with the investment, and assess the impact of the changed business model on the ownership and valuation of the investment. In addition, the respondents failed to obtain adequate evidence of the valuations in relation to the investment and convertible notes issued pursuant to the amended terms of acquisition, and the appropriate accounting treatment of securities issued in consideration for the manager’s services.
Further, there were deficiencies in the procedures carried out by the respondents to verify the group’s sales revenue and assess possible impairment of the company’s interests in subsidiaries.
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$50,000 and they jointly pay costs of the Institute and the Financial Reporting Council (FRC) totalling HK$53,078.
Yuen Suk Ching, CPA and Leung Tai Keung, CPA
Complaint: Failure or neglect by Yuen to observe, maintain or otherwise apply HKSA 200 Objective and General Principles Governing an Audit of Financial Statements, HKSA 230 Audit Documentation, HKSA 240 The Auditor’s Responsibilities to Consider Fraud in an Audit of Financial Statements, HKSA 300 Planning an Audit of Financial Statements, HKSA 315 Understanding the Entity and its Environment and Assessing the Risks of Material Misstatement, HKSA 500 Audit Evidence, HKSA 520 Analytical Procedures, HKSA 550 Related Parties and HKSA 700 The Independent Auditor’s Report on a Complete Set of General Purpose Financial Statements. Failure or neglect by Leung to observe, maintain or otherwise apply HKSA 220 Quality Control for Audits of Historical Financial Information and HKSA 230. Further, Yuen and Leung were guilty of professional misconduct.
Yuen and Leung were partners of HLM & Co., a firm which is now de-registered. The firm expressed unmodified auditor’s opinions on the consolidated financial statements of Blue Spa Holdings Limited (currently known as SuperRobotics Limited), a Hong Kong-listed company, and its subsidiaries (collectively, group) for the years ended 30 June 2008 to 2010. Yuen was the engagement partner and Leung was the engagement quality control reviewer of the audits.
The Institute received a referral from the FRC about audit irregularities. There were numerous unusual factors which indicated a heightened risk of irregularity. The risk indicators included the following:
- The group had significant amounts of prepayments, and these had increased significantly over the three years. Some amounts were prepaid long before the goods bought were delivered;
- Prepayments to the suppliers were made through a major customer by cash cheques;
- The group’s revenue relied heavily on sales to the major customer, and some receivables were long outstanding;
- Receivables from the major customer were settled in cash received from certain former directors of the company and could not match with individual sales invoices; and
- Control over revenue recognition depended on only a few key management personnel.
The respondents failed to conduct their audits with an attitude of professional scepticism. This led to their failure to adequately plan the audits and design appropriate procedures to address heightened risks, including the risk of material misstatement due to fraud in revenue recognition. In turn, the respondents failed to perform and document sufficient, appropriate audit procedures on the nature of the prepayments, identities of the major customer and suppliers, existence of sales recorded and recoverability of receivables.
The respondents also failed to update the audit strategy and revise the audit plan upon having significant concerns about being unable to confirm that prepayments had been received by the suppliers or purchased goods had been received by the company. Further, the respondents failed to appropriately evaluate whether the evidence obtained on the prepayments, sales and receivables would support their unmodified opinion on the financial statements.
Decisions and reasons: The practising certificate of Yuen was cancelled, with no issuance of practising certificate to her for 36 months, effective 4 June 2020. In addition, Leung was reprimanded and ordered to pay a penalty of HK$100,000. Further, Yuen and Leung were ordered to jointly pay HK$350,000 towards costs of the Institute and the FRC. When making its decision, the Disciplinary Committee took into account the serious deficiencies in the audit work performed and that the respondents’ disciplinary records showed they had persistently failed to comply with professional standards issued by the Institute.
Details of the Resolution by Agreement and disciplinary finding are available at the Institute’s website.