Quality assurance
How are practices selected for practice review?
The Quality Assurance Department selects practices for review primarily based on risk factors including the public interest profile of audit clients. The selection of practices is identified from a review of practices' responses in the practice review self-assessment questionnaire and other relevant information. Practices with regulated or significant public interest entity clients (but not listed entities) are given priority for site visit reviews. A number of practices are selected for site visit reviews on a random basis to ensure that all practices will have a reasonable chance of being selected.
How do reviewers conduct review work during the site visit?
Reviewers focus on the practice's own quality control procedures and how the practice ensures the quality of their own work. The review puts emphasis on risk areas and key judgments in audit assignment reviews rather than detailed checklist approach. The reviewers discuss findings of the practice review with partners or directors of the practices and agree the way forward.
When will the practices be informed of the engagements selected for practice review?
As a general policy, Quality Assurance Department will inform the practice of the engagements selected for practice review 7 working days prior to the commencement of the practice review site visit. The 7 working day notification period is conditional on the Quality Assurance Department receiving a client list from the practice no less than 3 weeks before the scheduled visit.
Does my practice need to appoint a money laundering reporting officer (MLRO) if (a) it does not have an intention to engage, by way of business, in work to prepare for or carry out specified transactions or (b)it is an own name practice with no staff?
The Drug Trafficking (Recovery of Proceeds) (Amendment) Ordinance; Organized and Serious Crimes (Amendment) Ordinance; and United Nations (Anti-Terrorism Measures) Ordinance all have requirements to report suspicious transactions, which apply to everybody in Hong Kong. Under the law, employees may disclose their knowledge or suspicion that certain activities may relate to money laundering and terrorist financing to a person designated to receive such reports by their employer. By making appropriate disclosures to the designated person, in accordance with procedures laid down by their employer, employees are regarded as having discharged their obligations under the law. As indicated in Section 2 of the Guidelines on Anti-Money Laundering and Counter-Terrorist Financing for Professional Accountants, practices must appoint an MLRO as a central reference point for reporting suspicious transactions. Therefore, each practice should designate a person of sufficient seniority and authority within the practice as an MLRO in order to discharge its responsibilities. In case of a sole proprietorship or an own name practice, the sole proprietor or sole practitioner can be the MLRO but such designation should be communicated to all staff members, if any, in order to draw their awareness.(Posted on 16 January 2019)
If a CPA firm conducts due diligence work or acts as a reporting accountant for a client in respect of a purchase or a sale of real estate or a business entity, would that constitute a specified transaction and require the relevant AML procedures to be carried out by the CPA firm?
Paragraph 600.2.1 of the AML Guidelines provides that when practices, by way of business, prepare for or carry out for a client a transaction involving buying and selling of real estate (point (a) of the paragraph refers) or business entities (point (f) of the paragraph refers), specific AML procedures are required to be adopted. In the Institute's view, due diligence or reporting accountant work on a purchase or a sale of real estate or a business entity assists the client in preparing for those transactions, whether or not they are eventually completed. The nature of those engagements means that the CPA firm to be engaged for such work would normally be sufficiently involved to fall within the scope of paragraph 600.2.1 and hence the relevant AML procedures should apply. (Posted on 16 January 2019)
If a practice introduces a company secretary to a client, will this work be considered as a service of "arranging for another person to act as a secretary" (paragraph 600.2.2(b)) and thereby met the definition of a specified service? Does it make a difference if the practice is paid or not paid for the introduction?
One of the considerations of whether the introduction amounts to a specified service is whether the practice does that by way of business. According to the Companies Registry's Frequently Asked Questions on licensing requirements for trust or company service providers or TCSPs, whether the provision of a service amounts to "by way of business" is a question of fact to be answered upon consideration of all the circumstances. If, for example, the practice is not paid for the introduction, whether directly or indirectly, and does the introduction on an ad hoc basis, and not, e.g., as a part of a regular or habitual commercial arrangement, the service may not be considered as a specified service. (Posted on 10 June 2019)
