Resolution by Agreement

Press release:

 
Penalty:
-

Press release:

The 1^st respondent expressed an unmodified auditor’s opinion on the consolidated financial statements of a Hong Kong listed company and its subsidiaries for the year ended 31 December 2016. The 2^nd respondent was the engagement director and the 3^rd respondent was the engagement quality control reviewer. 

The company breached Hong Kong Accounting Standard (HKAS) 39 by failing to recognise an impairment loss on its available-for-sale investments, which had resulted from a significant decline in the fair values of the investments below their original costs. In their audit, the respondents failed to recognize the inappropriate accounting treatment of the fair value decline in the financial statements.

Reprimand
 
Penalty:
1^st respondent
HK$35,000

2^nd respondent
HK$45,000

3^rd respondent
HK$20,000

 1)  Chan Shek Chi
 2)  Tong Yat Hung

 3)  Cheng & Cheng Limited

 Press release:

(ENG)
(CHI)

Order:
Reprimand
 
Penalty:
1^st respondent
HK$35,000

2^nd respondent
HK$25,000

3^rd respondent
HK$50,000

Costs:
HK$108,243.82
(including FRC costs)
(jointly paid by the respondents)

2) RSM Hong Kong

Press release:
(ENG)
(CHI)

The 2^nd respondent audited the consolidated financial statements of a Hong Kong listed company and its subsidiaries for the year ended 31 December 2016. The 1^st respondent was the engagement partner of the audit. 

The financial statements had been revised to correct material misstatements in the consolidated loss for the year and exchange reserve, which were caused by an accounting error in relation to a duplicated recognition of an impairment loss on a receivable which was fully impaired in 2014. The respondents failed to identify the misstatements and to design and perform appropriate audit procedures to obtain sufficient appropriate audit evidence pertaining to the receivable, the impairment loss on the receivable, and the exchange reserve. They also drew an inappropriate conclusion that the financial statements as a whole were free from material misstatement. In addition, the 1^st respondent failed to evaluate the appropriateness and accuracy of the consolidation adjustments pertaining to the receivable.

Costs:
HK$148,772.07

Press release:

The Institute received a referral from the Financial Reporting Council (FRC) about audit irregularities. They noted that an immaterial overstatement of liability had not been adjusted in the financial statements, but the respondents failed to include the overstated amount in a summary of unadjusted misstatements. In addition, the respondents failed to prepare adequate audit documentation of their procedures carried out on the above misstatement and the determination of audit materiality.

Penalty:
1^st respondent
HK$35,000

2^nd respondent
HK$50,000

Costs:
HK$127,967
(including FRC costs)
(jointly paid by the respondents)

 19 April   

 2022

2)  Muk Chung Wing

3)  Wong Sau Ling

Press release:

(ENG)
(CHI)

The 1^st respondent audited the consolidated financial statements of a Hong Kong listed company and its subsidiaries for the year ended 31 December 2015. The 2^nd respondent was the engagement partner and the 3^rd respondent was the engagement quality control reviewer.

The respondents failed to identify that earnings per share disclosed in the financial statements were misstated.  The misstatement resulted from errors in calculating the weighted average number of shares outstanding after a bonus share issue and an open offer of shares made by the company during the year.

Penalty:
1^st respondent
HK$50,000

2^nd respondent
HK$35,000

3^rd respondent
HK$35,000

Costs:
HK$142,905.07
(including FRC costs)
(paid by the respondents jointly)

Lam Siu Hung

Press release:

The respondent was an independent non-executive director and the audit committee chair of a Hong Kong listed company. In July 2021, the Stock Exchange of Hong Kong censured him for failing to ensure the effectiveness of the company’s safeguards over compliance with the Listing Rules, leading to violations of those rules in respect of a major and connected loan transaction undertaken by the company. In addition, the respondent was held accountable for the company’s failure to adequately address possible irregularities found in the audit of the company’s 2017 financial statements and internal control deficiencies persisting in a number of years. The respondent was also directed to undergo training in the relevant compliance areas.

 
Penalty:
-

Kong Muk Yin

Press release:

(ENG)
(CHI)

The respondent was the executive director of a Hong Kong listed company, and was responsible for the company’s finance and accounts department as well as company secretarial matters and administration. In May 2021, the Market Misconduct Tribunal (MMT) sanctioned the company and its directors for late disclosure of inside information regarding unrealized profits and significant gains. The MMT fined the respondent, disqualified him from being a director of a listed company for six months, and ordered him to undergo an approved training programme.

 
Penalty:
-

Press release:

The respondent was the honorary auditor of an entity registered under the Trade Unions Ordinance, Cap. 332. He issued an unmodified auditor’s report on the statement of account of the entity for each of the seven years ended 31 August 2013 to 2019. However, the audit procedures performed by the respondent were deficient in that he did not (i) evaluate how the limited extent of the audit work performed on the entity’s receipts and expenditures met the statutory requirements; (ii) adequately analyse the nature of the receipts to support his conclusion that the entity was exempted from profits tax; and (iii) obtain an adequate understanding of the internal controls related to the entity’s recording of its receipts and expenses. Furthermore, the respondent failed to specify the accounting framework under which the statement of account had been prepared, and the auditing and assurance standards under which the engagement had been conducted.

As a result, the respondent failed to (a) design and perform audit procedures to obtain sufficient appropriate audit evidence in accordance with Hong Kong Standard on Auditing (HKSA) 500 Audit Evidence; (b) obtain an understanding of the client, its environment and internal controls in accordance with HKSA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment; and (c) prepare sufficient audit documentation to support his audit conclusion in accordance with HKSA 230 Audit Documentation. 

Press release:

Penalty:
-

Costs:
HK$15,000

Press release:

The respondent issued an accountant’s report on a solicitors’ firm under the Accountant’s Report Rules (Cap. 159A) (ARR) for the year ended 31 December 2019. However, the procedures performed by him in support of the report were deficient in that (i) the clients’ ledger accounts of the firm were not scrutinized for at least two dates within the year to ensure that no account was overdrawn; (ii) the respondent failed to identify that certain cheque payments out of client accounts, which were checked in his sampling test, were not made to the solicitor but to third parties in violation of the Solicitors’ Accounts Rules; (iii) circularization of client ledger accounts was not performed; and (iv) no written confirmation was obtained from the firm that regular back-up procedures were carried out for its computerized accounting system.

As a result, the respondent failed to conduct the reporting engagement in accordance with the ARR and the Institute’s Practice Note 840 (Revised) Reporting on Solicitors’ Accounts under the Solicitors’ Accounts Rules and the Accountant’s Report Rules.

 
Penalty:
HK$50,000

Press release:

The respondent was formerly a responsible officer and the chief executive officer of a company. In 2017, he was the sponsor principal in charge of supervising the execution of a listing application for which the company was the sole sponsor. The listing application lapsed subsequently after inquiries by the Securities and Futures Commission (SFC) and The Stock Exchange of Hong Kong Limited. 

The SFC later instituted an investigation and found that the company failed to comply with relevant rules and regulations of the SFC. The SFC also found that the company’s failures were attributable to the respondent’s failure to discharge his duties and the respondent was in breach of the relevant rules and regulations of the SFC. In September 2020, the SFC issued a decision notice banning the respondent from re-entering the industry for 20 months.

Press release:

Failure or neglect to observe, maintain or otherwise apply Hong Kong Standard on Auditing (HKSA) 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, HKSA 330 The Auditor’s Responses to Assessed Risks, HKSA 500 Audit Evidence and the fundamental principle of professional competence and due care in sections 110.1 A1(c) and R113.1 under Chapter A of the Code of Ethics for Professional Accountants.

The respondents expressed an unmodified auditor’s opinion on the financial statements of a private company for the year ended 31 March 2019. They failed to perform appropriate audit procedures to evaluate whether some of the company’s expenses were for genuine business purposes and properly approved. In particular, they failed to obtain sufficient appropriate audit evidence supporting lump sum payments for expenses made through a shareholder of the company. In addition, they did not evaluate how the company’s inability to provide support for the payments would impact the auditor’s opinion.

Costs:
HK$15,000
(paid by the two respondents jointly)

1) Chan Chi Kwong, Dickson

2) CF Partners Limited

Press release:

Penalty:
HK$15,000
(paid by the two respondents jointly)

Costs:
HK$15,000
(paid by the two respondents jointly)

Press release:

Reprimand
 
Penalty:
HK$20,000

Costs:
HK$15,000

Cheng & Cheng Limited

Press release:

(ENG)
(CHI)

The respondent audited the financial statements of a private company for the years ended 30 June 2015 and 30 June 2016.

For the 2015 financial year, an initial set of financial statements issued by the company with an unmodified auditor’s report was later replaced by a revised set of financial statements with a modified auditor’s report. The respondent failed to perform sufficient audit procedures on a revenue item and certain significant related party transactions when auditing the initial financial statements. In reporting on the revised financial statements, the respondent failed to draw attention to the changes made to the financial statements and to the initial auditor’s report issued.

For the 2016 financial year, the respondent carelessly allowed a wrong set of the company’s financial statements to be printed and issued with an unmodified auditor’s report. The mistake was later rectified by the issue of a set of correct financial statements with a modified auditor’s report.

For both of the years, the respondent failed to take appropriate action to prevent reliance on the initial auditor’s report that had been replaced, when management had not acted adequately to this effect.

Reprimand

Penalty:
HK$50,000

Costs:
HK$15,000

1)   Edmund Siu

2)   Yip Kai Yin

3)   Elite Partners CPA

       Limited

Press release:
(ENG)
(CHI)

The 3^rd  respondent audited the consolidated financial statements of a Hong Kong listed company and its subsidiaries for the year ended 31 March 2014. The 1^st respondent was the engagement director and the 2^nd  respondent was the engagement quality control reviewer.

The financial statements included goodwill arising from the acquisition of a business engaged in the development and operation of a mobile phone application. In the audit, the respondents failed to obtain sufficient appropriate evidence and prepare sufficient audit documentation when assessing the impairment of the goodwill.

Reprimand

Penalty:
HK$50,000 for each of the three respondents

Costs:
HK$289,594.80
(including FRC costs) (jointly paid by the respondents)

Press release:

 
Penalty:
HK$10,000

Costs:
HK$15,000

Press release:

The financial statements included the listed group’s investment in a private group that was classified as an interest in an associate. The stated accounting policy for the investment was to incorporate the results and assets and liabilities of the associate using the equity method of accounting under Hong Kong Accounting Standard 28 Investments in Associates. This was inconsistent with the listed group’s accounting practice of stating the investment at fair value.

The respondent failed to carry out audit procedures to resolve the inconsistency between the stated accounting policy and adopted accounting practice for the investment.

 
Penalty:
-

Costs:
HK$39,132.

1) Ho Chi Pui
2) ANDERSON LI & HO CPA Limited

Press release:

Failure or neglect to observe, maintain or otherwise apply the fundamental principle of professional competence and due care in R113.1 and R113.2 under Chapter A of the Code of Ethics for Professional Accountants.

 
Penalty:
HK$50,000
(paid by the two respondents jointly)

Costs:
HK$15,000
(paid by the two respondents jointly)

Press release:

The firm issued an unmodified review report on the interim financial statements of a listed company and its subsidiaries for the six months ended 31 December 2018. The group made significant payments for capital expenditures during the period. Most of the payments were for land improvement contracts and were incorrectly classified as “lease prepayments for orange plantations”.

The respondents’ working papers reflected insufficient understanding of the group’s accounting system; insufficient assessment of the impact of the inappropriate classification; and inadequate procedures in relation to impairment assessments. 

Reprimand

Penalty:
HK$50,000 (paid by the two respondents jointly)

Costs:
HK$15,000 (paid by the two respondents jointly)

2)  John Tam & Co. 

     Certified Public

     Accountants

Press release:

(ENG)
(CHI)

Failure or neglect to observe, maintain or otherwise apply the fundamental principle of professional competence and due care in sections 110.1 A1 (c) and R113.1 under Chapter A of the Code of Ethics for Professional Accountants.

The respondents issued an accountant’s report for a solicitor’s firm under the Accountant’s Report Rules (Cap. 159A). They did not conduct their procedures fully in accordance with those rules and the Institute’s Practice Note 840 (Revised) Reporting on Solicitors’ Accounts under the Solicitors’ Accounts Rules and the Accountant’s Report Rules. The respondents failed to identify errors in the solicitor firm’s ledger and the firm’s lack of prior written notification to clients when its fees were settled by withdrawing money from clients’ accounts. In addition, there were deficiencies in the respondents’ procedures on testing of bank reconciliations and confirmation of bank balances.

Reprimand

Penalty:
HK$25,000 (paid by the two respondents jointly)

Costs:
HK$15,000 (paid by the two respondents jointly)

Li, Tang, Chen & Co.

Press release:

Failure or neglect 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 500 Audit Evidence, and HKSA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures.

The firm expressed an unmodified auditors’ opinion on the consolidated financial statements of a listed company (“Company”) and its subsidiaries for the year ended 31 March 2015. Both the engagement partner and the engagement quality control reviewer of the audit have since resigned from the Institute.

In the audit, the firm did not properly assess the method, bases and assumptions used by the Company’s management and valuer in valuing intangible assets acquired in a business combination. The firm also failed to identify an error made by the company during its accounting for the consideration shares issued for the business combination.

Reprimand

Penalty:
HK$50,000 

Costs:
HK$243,799
(including FRC costs)

Lui Tin Nang

Press release:

Failure or neglect to observe, maintain or otherwise apply the fundamental principle of Professional Competence and Due Care in sections 110.1 A1(c) and R113.1 under Chapter A of the Code of Ethics for Professional Accountants.

Reprimand
 
Penalty:
HK$25,000

1)  Wong Ka Chung

2)  Pondus (CPA) Limited

Press release:

The 2^nd respondent was the auditor of a private company and issued an unmodified audit opinion on each of the company’s financial statements for the years ended 31 March 2016 to 2019. The 1^st respondent was the engagement director and signed the auditor’s reports on behalf of the 2^nd respondent.

In the performance of the audits, the respondents failed to prepare adequate documentation and perform adequate procedures on the company’s bank accounts, membership fee income, ongoing litigations and certain expense items.

Reprimand
 
Penalty:
HK$30,000 for each of the two respondents

Press release:

Failure or neglect to observe, maintain or otherwise apply the fundamental principle of Professional Competence and Due Care in the requirement R113.1 of the Code of Ethics for Professional Accountants.

The respondent issued an accountant’s report for a solicitors’ firm under the Accountant’s Report Rules (Cap. 159A). In conducting the reporting engagement, the respondent failed to comply with the Institute’s Practice Note 840 (Revised) Reporting on Solicitors’ Accounts under the Solicitors’ Accounts Rules and the Accountant’s Report Rules. The deficiencies related to lack of procedures for accepting and planning the engagement and agreeing the terms of the engagement in the form of an engagement letter, and lack of tests or procedures to evaluate if the solicitors’ firm had complied with the requirements under the Solicitors’ Accounts Rules (Cap. 159F).

Reprimand
 
Penalty:
HK$40,000

Press release:

 
Penalty:
HK$50,000

Kong Kam Yu

Press release:

Failure or neglect to observe, maintain or otherwise apply the fundamental principle of Professional Behaviour in sections 100.5(e) and 150.1 of the Code of Ethics for Professional Accountants.

The respondent was formerly an executive director, qualified accountant and company secretary of a Hong Kong listed company. In 2018, he was sanctioned by the Stock Exchange of Hong Kong for breach of the listing rules and director’s undertakings. The respondent failed to ensure that the listed company made timely disclosure and obtained shareholders’ approval of a series of transactions and events involving the company’s interest in a foreign listed company.

 
Penalty:
HK$50,000

Press release:

Failure or neglect by the 1^st and 3^rd respondents 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 the 2^nd respondent to observe, maintain or otherwise apply HKSA 220 Quality Control for an Audit of Financial Statements.

The 3^rd respondent audited the consolidated financial statements of a Hong Kong listed group for the year ended 31 May 2012 and expressed an unmodified auditor’s opinion. The 1^st respondent was the engagement director and the 2^nd respondent was the engagement quality control reviewer.

The respondents failed to perform sufficient appropriate audit procedures concerning an investment in a dairy business overseas and convertible notes issued as consideration for the investment, and the appropriate accounting treatment of securities issued to a manager appointed for the dairy operations.

There were also audit deficiencies identified in the areas of sales revenue and assessing impairment of the company’s interests in subsidiaries.

 
Penalty:
HK$50,000 for each of the three respondents

Press release:

Failure or neglect to observe, maintain or otherwise apply Hong Kong Standard on Auditing 220 Quality Control for an Audit of Financial Statements.

The respondent was the engagement quality control reviewer in the audit of the consolidated financial statements of a Hong Kong listed company and its subsidiaries for the year ended 31 December 2014.

The listed 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.

Reprimand
 
Penalty:
HK$50,000

1)  Lam Pik Wah

2)  Yeung Kit Kam, Lesley

3)  BDO Limited

Press release:

The 3^rd respondent audited the consolidated financial statements of a Hong Kong listed group for the year ended 31 December 2013 and expressed an unmodified auditor’s opinion. The 1^st respondent was the engagement director and the 2^nd respondent was the engagement quality control reviewer.

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.

 
Penalty:
Each of the three respondents: HK$25,000

Ng Ka Hong

Press release:

The respondent was the engagement quality control reviewer in the audit of the consolidated financial statements of a Hong Kong listed company and its subsidiaries for the year ended 31 December 2014.

 
Penalty:
HK$20,000

1)  Chan Wai Nam, William

2)  Jimmy Siu

3)  Elite Partners CPA Limited

Press release:

The 3^rd respondent audited the consolidated financial statements of a Hong Kong listed company and its subsidiaries for the year ended 31 December 2015 and expressed an unmodified auditor’s opinion. The 1^st respondent was the engagement director and the 2^nd respondent was the engagement quality control reviewer.

In the audit, the respondents failed to obtain sufficient evidence of the assumptions adopted by the valuer in valuing an option acquired by the company, and to prepare adequate documentation of their purported discussions with management concerning the option and other audit procedures purportedly carried out on it. In addition, the respondents failed to identify the inadequate financial statement disclosures relating to the option.

 
Penalty:
1^st respondent: HK$35,000

2^nd respondent: HK$20,000

3^rd respondent: HK$50,000

Press release:

 
Penalty: HK$25,000

In 2012, the listed company issued a convertible note to its controlling shareholder and chairperson, the terms of which contained contingent settlement provisions which would obligate the company to redeem the unconverted outstanding balance of the note in cash when certain events occurred. Notwithstanding this, the company recognized its contractual obligation to pay interest for the note as a financial liability and the residual balance as an item in equity, whereas it should have comprised embedded derivative financial instruments and a financial liability.

In their initial audit for 2014, the respondents concurred with the opening balances pertaining to the convertible note and failed to properly evaluate whether that accounting treatment complied with Hong Kong Accounting Standard 32 Financial Instruments: Presentation. In 2017, the note matured and part of it had to be settled by cash. The company then reassessed the initial accounting treatment of the note, and after discussion with the respondents, made relevant prior year adjustments.

The 3^rd respondent audited the consolidated financial statements of a Hong Kong listed company and its subsidiaries for the years ended 31 March 2010 to 2012 and expressed unmodified auditor’s opinions. The 1^st respondent was the engagement partner and the 2^nd respondent was the engagement quality control reviewer.

The audit irregularities concerned revenue recognition and a convertible note.

The listed group recognized the unutilized portion of prepaid service contracts as revenue when customers changed contracts before expiry, and the underlying service treatments had not yet been delivered. This was contrary to Hong Kong Accounting Standard (HKAS) 18 Revenue.

In the 2010 and 2011 audits, the respondents failed to consider the relevant risk of material misstatement, and failed to plan and perform audit procedures to test the relevant revenue transactions and the related internal controls. In the 2012 audit, the respondents identified the accounting non-compliance and, through audit tests performed, calculated the expected misstatements. Management determined an amount based on the respondents’ calculation, and adjusted the financial statements accordingly. However, the respondents failed to justify that the management’s adjusted amount was sufficiently precise to correct the misstatements.

Further, in 2012, the listed company issued a convertible note to its controlling shareholder and chairperson, the terms of which contained contingent settlement provisions which would obligate the company to redeem the unconverted outstanding balance of the note in cash when certain events occurred. Notwithstanding this, the company recognized its contractual obligation to pay interest for the note as a financial liability and the residual balance as an item in equity, whereas it should have comprised embedded derivative financial instruments and a financial liability.

Reprimand

 
Penalty:
1^st respondent: HK$40,000

2^nd respondent: HK$10,000

3^rd respondent: HK$50,000