BCGA 2020 invites entries
The Institute’s Best Corporate Governance Awards (BCGA) are celebrating their 20th anniversary this year, and are now open for entries. Over the past 20 years, the BCGA have promoted and highlighted the value of good governance, identified those listed companies and public sector organizations that represent best practices in Hong Kong, and encouraged others to follow suit. The deadline to enter is 10 August.
Recruiting QP workshop facilitators
The Institute is recruiting workshop facilitators for the new Qualification Programme (QP). Members are invited to join us in unlocking the potentials of future-ready accountants. The general requirements for facilitators are:
- A minimum of four years’ membership with the Institute.
- Holding or recently held a responsible position in a professional, business, government or academic organization.
- A working knowledge and demonstrated technical competence in the module subject matter.
- Good command of spoken English.
For enquiries, please email email@example.com.
2020 CIA Challenge Exam
The Institute, in partnership with The Institute of Internal Auditor, is offering Institute members the 2020 Certified Internal Auditor (CIA) Challenge Exam – a fast track way to attain the globally recognized CIA designation. The application period is from 1 August until 30 September. More details can be found on the Institute’s website.
Renewal of mutual recognition agreements
The Institute’s mutual recognition agreements (MRA) with the Association of Chartered Certified Accountants and CPA Australia have been renewed for five years. A new MRA with the United States has also been signed, and is effective from 1 July 2020 to 31 December 2022. The full list of MRAs with overseas accounting bodies and their respective admission requirements is available on the Institute’s website.
Council meeting minutes
The abridged minutes from the June Council meeting are now available. They can be found in the “Members’area” of the Institute’s website.
Fung Pui Cheung, CPA, Lee Ping Kai, CPA (practising) and Pan-China (H.K.) CPA Limited
Complaint: Failure or neglect by Fung and Pan-China 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 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, HKSA 500 Audit Evidence and HKSA 550 Related Parties. Failure or neglect by Lee and Pan-China to observe, maintain or otherwise apply HKSA 200, HKSA 500 and HKSA 705 Modifications to the Opinion in the Independent Auditor’s Report.
Pan-China expressed unmodified auditor’s opinions on the consolidated financial statements of Richly Field China Development Limited, a Hong Kong-listed company, and its subsidiaries (collectively, group) for the years ended 31 March 2011 and 2012. Fung was the engagement director in 2011 and Lee was the engagement director in 2012.
The Institute received a referral from the Financial Reporting Council (FRC) about irregularities in the audits. The group had agreed with a state-owned entity in China to undertake a construction project which was initially set to be completed by September 2011. From September 2011, the group signed several revised agreements with the entity which extended the construction period and redefined the scope of work. The group recognized the consideration received as deposit in advance, which was a liability, in the 2011 and 2012 financial statements.
In their audits, the respondents relied on site inspections and management representations to conclude that the construction project was in an early stage and the cost incurred was immaterial. They did not obtain and review relevant survey reports, which were necessary for assessing the progress of the project. As a result, they failed to properly evaluate whether the construction project was accounted for in the financial statements in compliance with the requirements of Hong Kong Accounting Standard 11 Construction Contracts.
Separately, the group engaged a financial consultancy firm for advisory service in 2010. In the financial statements, the cost of the service was recognized based on the amount paid rather than the amount accrued. In addition, the recognized cost was wholly capitalized in assets and no part of it was included in expenses. The respondents failed to critically assess whether the group’s approach to accounting for the cost of the advisory service complied with applicable accounting requirements.
In addition, the group engaged two entities to assist in its investment activities in 2011, and made significant advances to those entities outside the normal course of business. In their audit, Fung and Pan-China failed to maintain adequate professional scepticism by understanding the business rationale of the advances, and critically assessing whether the group and the entities were related parties and whether the advances were recoverable.
Decisions and reasons: All the respondents were reprimanded. In addition, Fung, Lee and Pan-China were ordered to pay a penalty of HK$220,000, HK$150,000 and HK$400,000, respectively. Further, the respondents were ordered to jointly pay costs of the Institute and the FRC totalling HK$234,018. When making its decision, the Disciplinary Committee considered that the breaches were serious and warranted a deterrent sanction to convey the message that they would not be condoned. The committee also considered that the disciplinary records of Fung and Pan-China indicated their repeated failures to comply with professional standards issued by the Institute.
Ko Chiu Wan, Eric, 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; HKSA 500 Audit Evidence; HKSA 705 Modifications to the Opinion in the Independent Auditor’s Report; the requirements concerning acceptance of an audit appointment under limitations of audit scope in section 410.52 of the Code of Ethics for Professional Accountants; and the fundamental principle of professional competence and due care in sections 100.5(c) and 130.1 of the code of ethics.
The Institute conducted a follow-up practice review on Ko’s sole proprietor practice, Eric CW Ko & Company. The review revealed that a number of deficiencies identified in the initial practice review had not been appropriately addressed. It also identified new significant audit deficiencies. The findings reflected Ko’s failure to maintain an adequate quality control system for the practice, and raised concerns about the quality of the practice’s audit engagements and the professional competence of Ko.
Decisions and reasons: The Disciplinary Committee reprimanded Ko and ordered the cancellation of his practising certificate, with no issuance of a practising certificate to him for 15 months, with effect from 2 July 2020. In addition, Ko was ordered to pay costs of disciplinary proceedings of HK$44,514. When making its decision, the committee took into consideration the particulars of the breaches committed in this case and Ko’s admission of the complaint.
Yip Kai Yin, CPA (practising), Ng Man Chung, Siman, CPA (practising) and Elite Partners CPA Limited
Complaint: Failure or neglect by Yip and Elite to observe, maintain or otherwise apply HKSA 500 Audit Evidence, HKSA 510 Initial Audit Engagements – Opening Balances, HKSA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures and HKSA 710 Comparative Information – Corresponding Figures and Comparative Financial Statements. Failure or neglect by Ng to observe, maintain or otherwise apply HKSA 220 Quality Control for an Audit of Financial Statements. Further, Yip, Ng and Elite have been guilty of professional misconduct.
Elite was newly appointed as auditor of China Agrotech Holdings Limited, a Hong Kong-listed company for the year ended 30 June 2012. It audited the consolidated financial statements of the company and its subsidiaries for that year and expressed an unmodified auditor’s opinion. Yip was the engagement director and Ng was the engagement quality control reviewer.
The Institute received a referral from the FRC about irregularities in the audit. In the previous year, the company acquired a group and issued promissory notes and convertible bonds as purchase consideration. The purchase consideration would be adjusted if the acquired group failed to achieve a required annual minimum profit. The company did not account for the consideration adjustment as a contingent consideration in accordance with Hong Kong Financial Reporting Standard 3 Business Combinations. The company committed further accounting errors by treating the consideration adjustment as a cash flow item and recognizing it in the financial year after the one in which the profit shortfall arose. The respondents failed to carry out appropriate audit procedures to identify the above errors in the financial statements.
The respondents appealed the committee’s order, and as a result publication of the order was put on hold. On 2 June 2020, the Court allowed the respondents’ application to withdraw the appeal.
Decisions and reasons: The respondents were reprimanded. Pursuant to the Disciplinary Committee’s order, the practising certificates of Yip and Ng were cancelled, with no issuance of practising certificates to Yip and Ng for nine months and six months respectively, with effect from 2 June 2020 (date of withdrawal of the appeal). In addition, the committee ordered Yip, Ng and Elite to pay a penalty of HK$50,000, HK$50,000 and HK$100,000 respectively. The committee further ordered the respondents to jointly pay costs of the Institute and the FRC and it will determine the amount of costs to be paid after considering the parties’ submissions on that issue. When making its decision, the committee noted that the breaches were serious. They showed that the respondents’ knowledge of technical and professional standards was far below an acceptable level and, together with the respondents’ past regulatory records, pointed to a blatant and persistent failure to maintain professional competence.
Details of the disciplinary findings are available at the Institute’s website.