PART IV - OTHER REPORTING CONSIDERATIONS |
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| Audit Questionnaire | |||
| 115. | In order to assist the SFC to carry out its functions of supervising licensed corporations, auditors would normally on a voluntary basis complete an Audit Questionnaire for submission to the SFC, providing information that is not readily available from the audited financial statements. | ||
| 116. | Section 158 of the SFO allows auditors to provide such information to the SFC without the breaching of any duty of confidentiality to the licensed corporations. | ||
| 117. | Auditors would complete the Audit Questionnaire based on information obtained during the course of their audit of the financial statements covered by the Audit Questionnaire. The SFC does not expect auditors to extend the scope of their work in order to complete the Audit Questionnaire. | ||
| Additional financial information | |||
| 118. | The SFC has issued the Account Disclosure Document for Licensed Corporation which sets out additional financial information to be disclosed by licensed corporations. In the Audit Questionnaire auditors are requested by the SFC to state whether they are satisfied that no material inconsistency between the audited financial statements and the additional disclosure of financial information as required by the Account Disclosure Document for Licensed Corporation came to their attention. Auditors would perform procedures on the additional financial information in accordance with SAS 160 "Other information in documents containing audited financial statements". If the auditors are aware of any material inconsistencies, they state details of such inconsistencies in the Audit Questionnaire. | ||
PART V - COMMUNICATIONS BETWEEN AUDITORS AND THE SECURITIES AND FUTURES COMMISSION |
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| Introduction | |||
| 119. | This Part of the Practice Note is concerned with communications: | ||
| a. | by auditors to the SFC under the obligations established in section 157 of the SFO; | ||
| b. | by auditors to the SFC under the protection of section 158 of the SFO; and | ||
| c. | by the SFC to auditors under section 378(3)(h) of the SFO. | ||
| It is also concerned with the related issue of auditors' duty of secrecy under the SFO. | |||
| 120. | Because of the variety of conditions which might be encountered, the guidance in this Part of the Practice Note is necessarily set out only in general terms; the specific actions to be taken in a particular case may vary somewhat in the light of the circumstances. The auditors would be well advised to consult with their lawyers when they encounter such circumstances. | ||
| 121. | Under the SFO auditors have various statutory responsibilities to report to the SFC. They are automatically protected in making a report in discharge of such a statutory responsibility. Certain provisions of the SFO also provide the auditors with immunity from any liability they might otherwise incur by reason of their making other reports to the SFC which they may consider to be relevant to the functions of the SFC. These responsibilities and avenues available for reporting do not require the auditors to change the scope of their audit work, nor the frequency or timing of their visits. | ||
| 122. | When the circumstances where reporting may be appropriate are being considered, it should be noted that investments in financial markets carry inherent risks. It is not the purpose of the SFO, nor the duty of the auditors, to protect the investors from the normal risks relating to such investment activities. | ||
| 123. | Auditors need to bear in mind that their decision may have to stand up to examination at a future date on the basis of the following considerations: | ||
| a. | what they knew at the time; | ||
| b. | what they should have known in the course of their audit; | ||
| c. | what they should have concluded; and | ||
| d. | what they should have done. | ||
| Auditors to lodge report with the SFC in certain cases | |||
| Sections 157(1)(b) and 157(2) of the SFO | |||
| 124. | Auditors have a statutory duty to lodge report with the SFC in the following circumstances: | ||
| a. | if they decide to include in their audit report any qualification or adverse statement (SFO section 157(1)(b)). Such a written report is required to be lodged with the SFC as soon as reasonably practicable after the auditors first propose the inclusion of the qualification or adverse statement; and | ||
| b. | if they resign before the expiration of their term of office, intend not to seek re-appointment or otherwise cease to be auditors (SFO section 157(2)). Such a notice in writing to notify the SFC is required within one business day of the event, outlining the reasons and any connected circumstances which the auditors consider should be brought to the attention of the SFC, or where there are no such circumstances state the fact. | ||
| Section 157(1)(a) of the SFO | |||
| 125. | Section 157(1)(a) of the SFO provides that auditors shall lodge a written report with the SFC, as soon as reasonably practicable after they become aware of any "reportable matter". A reportable matter is defined in section 157(3) of the SFO as: | ||
| a. | any matter which in the auditors' opinion adversely affects the financial position of the regulated entity to a material extent; or | ||
| b. | a failure of the regulated entity to comply with any rules made under section 148, 149 or 151 of the SFO or a failure of the licensed corporation to comply with section 146 of the SFO or with any of the requirements of the FRR that apply to it. | ||
| 126. | These are statutory obligations and this Part of the Practice Note provides auditors with procedures to follow when such circumstances arise. | ||
| 127. | Section 157(3) of the SFO includes a failure by the regulated entity to comply with any "prescribed requirement" as a "reportable matter". In addition to the requirements under any of the rules made under sections 148, 149 and 151 of the SFO, it also refers to the requirements under any of the rules made under section 152 of the SFO (provision of contract notes, receipts, statements of account and notifications by intermediaries and their associated entities). It should be noted that the requirements under any of the rules made under section 152 of the SFO are not included as "matters reportable by auditors under section 157 of the SFO" in section 5 of the Securities and Futures (Accounts and Audit) Rules and therefore auditors are not required to report to the SFC if there is a failure of the regulated entity to comply with section 152 of the SFO. | ||
| Reporting criterion under section 157(1)(a) of the SFO | |||
| 128. | The auditors would take the initiative and ensure that a written report on the reportable matter under section 157(1)(a) of the SFO is lodged with the SFC if the conditions specified in paragraph 125 above exist. A distinction must be drawn here between an auditors' duty as stated in paragraph 125(a) and paragraph 125(b) above. The duty under paragraph 125(b) is clear and unequivocal: if the auditors become aware of a contravention of the requirements which are specified, they are not given any latitude for exercising judgement. Auditors are obliged to make a report. The duty under paragraph 125(a) is different. They are given the right to form an opinion based on applying criteria as to the materiality of an adverse effect on the regulated entity's financial position in deciding whether reporting would be appropriate. | ||
| 129. | The HKICPA has developed a criterion for use by auditors in deciding to take the initiative in lodging a written report with the SFC under paragraph 125(a) above. The criterion is that auditors would lodge a written report with the SFC when they consider it expedient to do so in order for the SFC to protect the interests of investors because there has been a material loss or there exists a significant risk of material loss. | ||
| 130. | This criterion can be more fully explained as follows: | ||
| a. | there must be a significant adverse occurrence or a change in the auditors' perception of an existing situation, that may include an adverse change in the circumstances of the business; and | ||
| b. | the situation described in (a) above has given rise to or has indicated that a reasonable probability exists that it may give rise to: | ||
| i. | a material financial loss to the business which would result in a material deterioration of the licensed corporation's liquid capital position under the FRR; or | ||
| ii. | loss of control over the assets or records. | ||
| 131. | Examples of the circumstances encountered in which the situation set out in paragraphs 129 and 130 may be met include: | ||
| a. | the auditors discover a failure by the regulated entity to comply with the provisions of the SFO which may have material consequences; or | ||
| b. | there is evidence of imminent financial loss of serious proportions which might cast doubt on the continuing viability of the regulated entity. | ||
| Reporting procedures under section 157(1)(a) of the SFO | |||
| 132. | In circumstances where auditors conclude that a written report under section 157(1)(a) of the SFO to the SFC is necessary, they would adopt the following procedures, bearing in mind that speed may be of the essence: | ||
| a. | The auditors would discuss the matter with the regulated entity (unless the matter relates to suspected or actual instance of fraud and serious misconduct by the management itself) and explain the auditors' statutory duty to lodge a written report with the SFC under section 157(1)(a) of the SFO and that it might be advisable for the regulated entity to make a report direct to the SFC immediately. | ||
| b. | The auditors would then immediately lodge a written report with the SFC. They would follow this with a written notification along with a copy of their report to the directors or management to inform them. | ||
| 133. | The auditors would note that lodging a written report with the SFC alone may not discharge all their responsibilities. For example, auditors would consider the implications of the matter giving rise to the report under section 157(1)(a) of the SFO for their opinion on the financial statements, and their conclusions in the Compliance Report. | ||
| Other communications by the auditors | |||
| Statutory protection under section 158 of the SFO | |||
| 134. | Section 158 (1) of the SFO provides that: "... no duty which a person may be subject to as an auditor ... shall be regarded as contravened by reason of his communicating in good faith to the Commission ..., whether or not in response to a request made by the Commission ..., any information or opinion on a matter which (a) he becomes aware of in his capacity as such auditor (whether or not in the course of performing his functions as such auditor); and (b) is relevant to any function of the Commission ...". |
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| 135. | Section 158 of the SFO only gives immunity for auditors appointed under section 153 of the SFO. It does not cover appointments under section 159 or 160 of the SFO which give the power of appointment to the SFC. However it does extend the immunity to: | ||
| a. | an auditor who has ceased to be the auditor but became aware of a matter before his appointment ceased (SFO section 158(2)(a)); | ||
| b. | an auditor appointed by a former regulated entity (SFO section 158(2)(b)); and | ||
| c. | an auditor who has ceased to be the auditor of a former regulated entity before his appointment ceased (SFO section 158(2)(c)). | ||
| 136. | Section 158 of the SFO does not lay down any rules nor specify the circumstances in which the auditors are to communicate any matter to the SFC. They provide a mechanism whereby the auditors may make matters known to the SFC with statutory protection from their duty of confidentiality. | ||
| 137. | This Part of the Practice Note contains guidance on the circumstances in which matters may be brought to the attention of the SFC by way of a report with statutory protection which falls outside those matters which the auditors are obliged to report (see paragraphs 124 to 133 above). In interpreting this guidance, the auditors would bear in mind the fundamental objectives of the SFO, which are to ensure that the SFC is able to fulfil its function of safeguarding the interests of investors. Auditors would have regard to any function of the SFC as summarized in section 5 of the SFO. | ||
| 138. | Confidentiality is an implied term of auditors' contract with their client, but in certain circumstances and under conditions specified in section 158 of the SFO it does not prevail, since auditors of a regulated entity are entitled to communicate in good faith to the SFC information or opinion on a matter which they become aware of in their capacity as auditors of the regulated entity and is relevant to any function of the SFC, without the duty of confidentiality owed to the client being regarded as having been contravened. | ||
| 139. | The matters which may be communicated under section 158 of the SFO depend on the functions of the SFC. Any matters relevant to any of its functions under the SFO may be communicated to the SFC. | ||
| 140. | Matters which may be reported under the protection of section 158 of the SFO will only arise in circumstances other than where the auditors are under a statutory duty to report under section 157 of the SFO. Considerable care needs to be taken in disclosing matters arising during any tripartite meeting with the SFC as the auditors' knowledge of these matters may have been obtained while assisting the SFC rather than in their capacity as auditors (see paragraph 144 below). | ||
| 141. | Examples of circumstances in which the auditors may communicate any matter to the SFC under section 158 of the SFO include: | ||
| a. | the auditors consider investors have incurred, or are at significant risk of incurring, a material loss as a result of the regulated entity carrying on business in a manner that is not fit and proper; | ||
| b. | there is evidence of: | ||
| i. | fraud, dishonesty or serious incompetence; or | ||
| ii. | serious failure to observe rules for the conduct of the regulated entity; | ||
| c. | it has come to the attention of the auditors that the procedures, records or systems fail significantly to comply with, or to demonstrate compliance with, conduct of business requirements to which the regulated entity is subject (except in respect of client assets which are covered in section 157 of the SFO); and | ||
| d. | the position is such that because of a significant risk which is material to the collective interests of investors, the investors' interests would be better safeguarded if the SFC were aware of the position, even if only to organize protective action. | ||
| 142. | Clearly the potential nature of matters which may be reported is very wide, but as explained in paragraph 145 below this does not, of itself, require the auditors to extend the scope of their work in order to discover matters and it will only be in exceptional circumstances such as those described in paragraphs 155 and 156 that they may choose to seek statutory protection. | ||
| 143. | Any protected communication can be made either on the auditors' initiative or in response to a request from the SFC for information. The auditors would cooperate with the SFC and respond to any requests from the SFC for information, provided they have no reason to doubt that the request is relevant to the SFC's functions. The auditors may communicate a matter to the SFC with the protection of section 158 of the SFO regardless of the source of that information, provided they became aware of the matter in their capacity as auditors of the regulated entity and they do so in good faith. | ||
| 144. | Matters of which the auditors become aware "in their capacity as auditors" may not be restricted to those matters identified during the course of the audit work by the auditors and members of the audit team. The auditors or members of the audit team may become aware of a matter which is relevant to the functions of the SFC during the course of their carrying out work for the regulated entity other than audit work or through private discussions on social or other occasions, in which case the information will be known to them as individuals. In circumstances which suggest that a matter would be reported to the SFC if knowledge of it had been obtained in the capacity as auditors, it would be prudent to make enquiries in the course of the audit work in order to establish whether this is the case from information obtained in this capacity. In addition, a matter which is relevant to the functions of the SFC and which is identified during the course of work for the regulated entity by another partner (or member of staff) such as a management consultant or tax partner may be deemed to be known to the auditors (see also paragraph 145 below). | ||
| 145. | The auditors cannot be expected to be aware of all circumstances which, had they known of them, would have led them to exercise their right to communicate under section 158 of the SFO. This section does not require the auditors to change the scope of their audit or other work for the regulated entity, nor the frequency or timing of their visits. The auditors have no obligation to seek out grounds for making a report under section 158 of the SFO, the section does not place an obligation on the auditors to conduct their work in such a way that there is reasonable certainty that they will discover a matter upon which the SFC may need to act. It is only when the auditors do become aware in the ordinary course of this work of such a matter, or of circumstances which suggest the existence of such a matter, that they would consider using the protection of section 158 of the SFO. | ||
| 146. | The SFC recognizes that it would not be appropriate for the auditors to report information which they have obtained or matters which they have identified through their professional relationship with another client, even though the information obtained or the matters identified may relate to a regulated entity. | ||
| 147. | The auditors would need to realize that section 158 of the SFO will not provide protection where they could be held to have acted maliciously or in bad faith or if the information reported is outside the scope of the section. The SFO does not, therefore, provide complete immunity from all types of legal action by all parties affected, or subsequently affected, by their action in reporting to the SFC. Auditors would consider taking legal or other professional advice before making the decision whether or in what manner to report and in order, for example, to ensure that the form and content of their report are such as to secure the protection of section 158 of the SFO and that it only includes relevant material. | ||
| 148. | Auditors are protected, however, even if the information which they communicate subsequently falls short of proof, or the opinion which they communicate cannot be verified. Auditors who can demonstrate that they have acted reasonably and in good faith in informing the SFC of any information or opinion on a matter which they think has occurred would not be held in breach of duty to their client even if, after an investigation, it were found there was not a matter which needed to be reported. These are areas where the auditors may wish to consider taking legal advice before making a report. | ||
| 149. | Whilst no breach of statutory duty might arise, it should be appreciated that there is no protection given by the SFO if the auditors, after becoming aware of an occurrence, fail to report, promptly, or at all, to the SFC. Furthermore, auditors would need to recognize that speed of reporting is likely to be important in order to enable the SFC to protect the interests of investors. | ||
| Tripartite meetings | |||
| 150. | As part of the SFC's system of supervision of regulated entities, meetings involving the SFC, the regulated entity and its auditors may be called by either the SFC, or the regulated entity possibly at the auditors' suggestion. | ||
| 151. | In such meeting, auditors would be expected to discuss with the SFC the affairs of the regulated entity including: | ||
| a. | the presentation and content of the financial statements; | ||
| b. | the scope, conduct and outcome of the annual audit; | ||
| c. | the scope, conduct and outcome of any report under section 158 of the SFO; | ||
| d. | any points raised in the management letter which relate to the SFO; | ||
| e. | explanations for, the reason for and nature of a qualified auditors' report or of a change in a previously reported intention to qualify an auditors' report; | ||
| f. | any step or course of action which may be necessary in the light of the reports, for example, the commissioning of a more detailed report in a particular area (under section 159 or 160 of the SFO); and | ||
| g. | matters raised by the SFC or those which the regulated entity or auditors have drawn to its attention since any previous meeting, including how such matters have been resolved to the satisfaction of the auditors or have been reflected or treated in the financial statements. | ||
| Reporting via the regulated entity | |||
| 152. | Where the auditors become aware of a matter which, in their professional judgement, they consider is not required to be reported under section 157 of the SFO but ought to be reported to the SFC, they would consider the facts and, unless inappropriate in the circumstances (described in paragraph 155 below), discuss the matter with the management. | ||
| 153. | It is important for the auditors to act in a manner that will maintain their professional relationship with their client. Normally, therefore, the auditors would ask the regulated entity to draw matters about which they are concerned to the attention of the SFC. | ||
| 154. | Where the regulated entity will not itself inform the SFC of a matter, having been advised to do so by the auditors, or where it has not been done within the period of time specified, or where there is no adequate evidence that the client has properly reported the matter in question, the auditors would make such a report direct to the SFC. | ||
| Reporting direct to the SFC | |||
| 155. | In exceptional circumstances, where the auditors doubt whether management is fit and proper person to carry on business as a regulated entity and it would be in the interest of protecting investors that the management of the regulated entity would not be informed in advance, the auditors would report direct to the SFC after first considering the appropriateness of taking independent legal advice. Examples of these circumstances include: | ||
| a. | where there has been an occurrence which causes the auditors no longer to have confidence in the integrity of the directors or senior management, e.g. where they believe that a fraud or other irregularity has been committed by the directors or senior management of the regulated entity, or they have evidence of the intention of directors or senior management to commit such a fraud or other irregularity; or | ||
| b. | where there has been an occurrence which causes the auditors no longer to have confidence that the directors or senior management will conduct the business of the regulated entity in a prudent manner so as to protect the interests of investors, e.g. where they have discovered that the directors or senior management are acting in an irresponsible or reckless manner with respect to the affairs of the business or its clients, or they have evidence of their inclination so to act. | ||
| 156. | The auditors would also report direct to the SFC when speed is of the essence. For example, when they become aware that the regulated entity may be about to cease being licensed, the auditors would consider the need to disclose to the SFC any information in their possession relevant to its functions without delay. The fact of such impending cessation of licence may bring forward the desirability of disclosing matters to the SFC, as it is easier for the SFC to take appropriate action while the entity is still licensed, particularly where such matters bear on the security of third party interests. | ||
| Auditors' duty of secrecy | |||
| 157. | Section 378 of the SFO imposes a duty of secrecy upon any "specified person", within the meaning of that term in section 378(15). Auditors are bound by the duty of secrecy once they perform any function under or carry into effect any of the provisions of the SFO or assist another person in the performance of any function under or in carrying into effect any such provisions. | ||
| 158. | The precise scope of an auditors' statutory duty of secrecy is not definitive but is likely to include: | ||
| a. | any matter which, in the auditors' opinion, adversely affects the financial position of the regulated entity to a material extent and which is the subject of a written report by the auditors to the SFC (SFO section 157(1)(a)) and the contents of that written report; | ||
| b. | any evidence of the regulated entity's failure to comply with any rules made under section 148, 149 or 151 of the SFO, or any evidence of the licensed corporation's failure to comply with section 146 of the SFO or with any of the requirements of the FRR that apply to it, which is the subject of a written report by the auditors to the SFC (SFO section 157(1)(a)) and the contents of that written report; | ||
| c. | the auditors' decision to resign before the expiration of their term of office, the auditors' decision not to seek re-appointment, or if the auditors otherwise cease to be auditors, and any reason for such decision which is communicated to the SFC under section 157(2) of the SFO; | ||
| d. | any reason for including any qualification or adverse statement in the auditors' report on the regulated entity's financial statements (SFO section 157(1)(b)) which is communicated to the SFC to the extent that such reason is not self-evident from the contents of the report itself; | ||
| e. | any communication by the auditors to the SFC under section 158 of the SFO, which is a communication of information or opinion on a matter which is relevant to any function of the SFC of which they become aware in their capacity as auditors, whether or not they are at the time of such communication still the auditors of the regulated entity concerned; and | ||
| f. | any communication by the SFC to the auditors under section 378(3)(h) of the SFO (see paragraphs 163 - 165 below). | ||
| 159. | Application of section 378 of the SFO would therefore prevent the auditors from communicating any matters such as those referred to in paragraph 158 above to any parties other than the SFC except under certain circumstances as discussed in paragraphs 160 and 161 below in relation to the matters mentioned in paragraph 158(c) above. It should be emphasised that application of section 378 of the SFO would also prevent the auditors from communicating information that is subject to the duty of secrecy to the regulated entity concerned except for information which the regulated entity already knows. | ||
| 160. | Section 140A(2) of the Companies Ordinance states that an auditors' notice of resignation shall not be effective unless it contains either (i) a statement to the effect that there are no circumstances connected with their resignation which they consider should be brought to the notice of the members or creditors of the company; or (ii) a statement of any such circumstances as aforesaid. Thus, the incoming auditors and members or creditors of a regulated entity may be informed by the outgoing auditors regarding their reasons to resign, not to seek re-appointment or otherwise cease to be the auditors. Disclosure of such information by the outgoing auditors of a regulated entity under the provisions of the Companies Ordinance is permitted under section 378(2)(e) of the SFO without breaching the duty of secrecy under section 378 of the SFO since the disclosure is made in accordance with a law. | ||
| 161. | In complying with a request by the incoming auditors to provide professional clearance which is required under HKICPA Professional Ethics Statement 1.207 "Changes in a professional appointment", the outgoing auditors may communicate the matters referred to in paragraph 158(c) to the incoming auditors. The outgoing auditors are considered to be doing this for the purposes of carrying into effect the provisions of section 153 of the SFO in order that the incoming auditors can accept nomination as auditors of the regulated entity under section 153 of the SFO. | ||
| 162. | Under this Practice Note, auditors would prepare two auditors' reports separately in respect of reporting on the financial statements (see paragraph 83(a) above) and compliance reporting (see paragraph 83(b) above). Since the Compliance Report by auditors is for filing with the SFC only and should not be made available to any other parties including the shareholders of the regulated entity, the auditors can disclose any contraventions by the regulated entity of the requirements referred to in paragraph 158(b) in the Compliance Report without breaching the duty of secrecy under section 378 of the SFO. | ||
| Communications by the SFC to auditors under section 378(3)(h) of the SFO | |||
| 163. | Section 378(3)(h) of the SFO empowers the SFC to disclose confidential information to auditors of regulated entities for the purpose of enabling or assisting the SFC to perform its functions under the SFO without the consent of the person from whom it is received or to whom it relates. It should be noted that disclosure by the SFC of confidential information to auditors is to them only; they are not free to pass that information to others, such as their client regulated entity without the consent in writing of the SFC. | ||
| 164. | The SFC will generally take the initiative in bringing a matter to the attention of auditors of a regulated entity under the provisions of section 378(3)(h) of the SFO if it considers disclosure is necessary to enable or assist the SFC to perform its functions under the SFO, and believes that it is of such importance that the auditors' knowledge of it could significantly affect the form of their audit report or the way in which they carry out their reporting responsibilities. Where the SFC discloses confidential information to auditors under section 378(3)(h) of the SFO, it will generally inform the auditors whether it has informed the regulated entity's management of the matter and, if so, whom. | ||
| 165. | If the auditors are not informed by the SFC of any such matter, they are entitled to assume that the SFC has no such disclosure to make. Accordingly, there is no need for the auditors to request the SFC to confirm this. | ||
APPENDIX 1 - EXAMPLES OF AUDITORS' REPORTS |
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| Example 1 - auditors' report on financial statements - regulated entity AUDITORS' REPORT TO THE SHAREHOLDERS OF XYZ SECURITIES LIMITED (incorporated in Hong Kong with limited liability) We have audited the financial statements on pages ... to ... which have been prepared in accordance with accounting principles generally accepted in Hong Kong. Respective responsibilities of directors and auditors The Companies Ordinance requires the directors to prepare financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently. In addition, the directors also have a responsibility to ensure that the financial statements are in accordance with the records kept under the Securities and Futures (Keeping of Records) Rules and satisfy the requirements of the Securities and Futures (Accounts and Audit) Rules. It is our responsibility to form an independent opinion on the above, based on our audit, and to report our opinion to you. Basis of opinion We conducted our audit in accordance with Statements of Auditing Standards and with reference to Practice Note 820 "The audit of licensed corporations and associated entities of intermediaries" issued by the Hong Kong Institute of Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company's circumstances, consistently applied and adequately disclosed. We have planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement, and whether the financial statements are in accordance with the records kept under the Securities and Futures (Keeping of Records) Rules and satisfy the requirements of the Securities and Futures (Accounts and Audit) Rules. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion: |
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| a. | the financial statements are in accordance with the records kept under the Securities and Futures (Keeping of Records) Rules and satisfy the requirements of the Securities and Futures (Accounts and Audit) Rules; and | ||
| b. | the financial statements give a true and fair view of the state of the company's affairs as at [year end date] and of its profit [loss] and cash flows for the year then ended and have been properly prepared in accordance with the Companies Ordinance. | ||
| ABC & Co. Certified Public Accountants Hong Kong Date |
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Example 1A - straddle auditors' report on financial statements - licensed corporation (previously securities dealer)
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| a. | the financial statements are in accordance with the records kept under section 83 of the Securities Ordinance and comply with the requirements of the Securities (Accounts and Audit) Rules for the period from [year start date] to 31 March 2003, and are in accordance the records kept under the Securities and Futures (Keeping of Records) Rules and satisfy the requirements of the Securities and Futures (Accounts and Audit) Rules for the period from 1 April 2003 to [year end date]; and | ||
| b. | the financial statements give a true and fair view of the state of the company's affairs as at [year end date] and of its profit [loss] and cash flows for the year then ended and have been properly prepared in accordance with the Companies Ordinance. | ||
| ABC & Co. Certified Public Accountants Hong Kong Date |
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Example 2 - compliance report by auditors - licensed corporation
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| a. | each of the returns as referred to in section 3(1)(b) of the Securities and Futures (Accounts and Audit) Rules made up to [year end date] is correctly compiled from the records of the company; | ||
| b.1 | the company has systems of control in place that are adequate to ensure compliance with: | ||
| i. | sections 4, 5, 6, 8(4), 10 and 11 of the Securities and Futures (Client Money) Rules; and | ||
| ii. | sections 4(4), 5, 10(1) and 12 of the Securities and Futures (Client Securities) Rules; | ||
| c. | the company has complied with: | ||
| i. | section 3 of the Securities and Futures (Keeping of Records) Rules; | ||
| ii.1 | sections 4, 5, 6, 8(4), 10 and 11 of the Securities and Futures (Client Money) Rules; and | ||
| iii.1 | sections 4(4), 5, 10(1) and 12 of the Securities and Futures (Client Securities) Rules; and | ||
| d. | the company has complied with the Securities and Futures (Financial Resources) Rules. | ||
| It is our responsibility to form an independent conclusion on the above, based on our engagement, and to report
our conclusion to you. Basis of conclusion We conducted our engagement in accordance with Standards on Assurance Engagements and with reference to Practice Note 820 "The audit of licensed corporations and associated entities of intermediaries" issued by the Hong Kong Institute of Certified Public Accountants. In relation to our conclusions 1(a) and 1(c) below, we have performed such procedures as we considered necessary. [In relation to our conclusion 1(b) below, our work was based upon obtaining an understanding of the relevant control procedures in operation by enquiry of management and review of documents supplied to us. Our work included tests of control procedures and policies to establish whether relevant control objectives and internal control measures were designed by management for meeting the requirements specified in the document "Suggested Control Techniques and Procedures for Enhancing a Firm's Ability to Comply with the Securities and Futures (Client Securities) Rules and the Securities and Futures (Client Money) Rules" issued by the SFC.] 1 In relation to our conclusion (2) below, we are not required to perform any procedures to search for instances of contravention of the Securities and Futures (Financial Resources) Rules. Inherent limitations Systems of controls designed to address specific control objectives are subject to inherent limitations of any internal control structure, and accordingly, errors or irregularities may occur and not be detected. Such measures cannot guarantee protection against fraudulent collusion especially on the part of those holding positions of authority or trust. Conclusion Based on the foregoing: |
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| 1. | in our opinion: | ||
| a. | the company has correctly compiled the attached returns as referred to in section 3(1)(b) of the Securities and Futures (Accounts and Audit) Rules made up to [year end date] from the records of the company; | ||
| b.1 | during the year ended [year end date], the company had systems of control in place that were adequate to ensure compliance with: | ||
| i. | sections 4, 5, 6, 8(4), 10 and 11 of the Securities and Futures (Client Money) Rules; and | ||
| ii. | sections 4(4), 5, 10(1) and 12 of the Securities and Futures (Client Securities) Rules; | ||
| c. | during the year ended [year end date], the company has complied with: | ||
| i. | section 3 of the Securities and Futures (Keeping of Records) Rules; | ||
| ii.1 | sections 4, 5, 6, 8(4), 10 and 11 of the Securities and Futures (Client Money) Rules; and | ||
| iii.1 | sections 4(4), 5, 10(1) and 12 of the Securities and Futures (Client Securities) Rules; and | ||
| 2. | during the year ended [year end date], we are not aware of any instances where the company has contravened the Securities and Futures (Financial Resources) Rules. | ||
| Use of this report This report is intended solely for submission by the company to the SFC and is not intended to be, and should not be, used by anyone for any other purpose. ABC & Co. Certified Public Accountants Hong Kong Date |
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___________________________________________________Note 1: Not applicable where the licensed corporation does not hold client assets. |
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Example 2A - straddle compliance report by auditors - licensed corporation (previously securities dealer)
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| 1. | the directors have a responsibility to ensure that up to 31 March 2003: | ||
| a.1 | the company has properly kept all securities to which section 83(3)(a)(vi) of the Securities Ordinance applies in accordance with section 81 or 81A, as the case may be, of the Securities Ordinance; | ||
| b. | the company has properly kept the records required to be kept by it under section 83 of the Securities Ordinance; | ||
| c.1 | the company has properly kept all trust accounts in accordance with section 84 of the Securities Ordinance; and | ||
| d. | the company has complied with the Financial Resources Rules; and | ||
| 2. | the directors also have a responsibility to ensure that: | ||
| a. | each of the returns as referred to in section 3(1)(b) of the Securities and Futures (Accounts and Audit) Rules made up to [year end date] is correctly compiled from the records of the company; | ||
| b.1 | since 1 April 2003, the company has systems of control in place that are adequate to ensure compliance with: | ||
| i. | sections 4, 5, 6, 8(4), 10 and 11 of the Securities and Futures (Client Money) Rules; and | ||
| ii. | sections 4(4), 5, 10(1) and 12 of the Securities and Futures (Client Securities) Rules; | ||
| c. | since 1 April 2003, the company has complied with: | ||
| i. | section 3 of the Securities and Futures (Keeping of Records) Rules; | ||
| ii.1 | sections 4, 5, 6, 8(4), 10 and 11 of the Securities and Futures (Client Money) Rules; and | ||
| iii.1 | sections 4(4), 5, 10(1) and 12 of the Securities and Futures (Client Securities)Rules; and | ||
| d. | since 1 April 2003, the company has complied with the Securities and Futures (Financial Resources) Rules. | ||
| It is our responsibility to form an independent conclusion on the above, based on our engagement, and to report
our conclusion to you. Basis of conclusion We conducted our engagement in accordance with Standards on Assurance Engagements and with reference to Practice Note 820 "The audit of licensed corporations and associated entities of intermediaries" issued by the Hong Kong Institute of Certified Public Accountants. In relation to our conclusions (1), 2(a) and 2(c) below, we have performed such procedures as we considered necessary. [In relation to our conclusion 2(b) below, our work was based upon obtaining an understanding of the relevant control procedures in operation by enquiry of management and review of documents supplied to us. Our work included tests of control procedures and policies to establish whether relevant control objectives and internal control measures were designed by management for meeting the requirements specified in the document "Suggested Control Techniques and Procedures for Enhancing a Firm's Ability to Comply with the Securities and Futures (Client Securities) Rules and the Securities and Futures (Client Money) Rules" issued by the SFC.] 1 In relation to our conclusion (3) below, we are not required to perform any procedures to search for instances of contravention of the Financial Resources Rules and the Securities and Futures (Financial Resources) Rules. Inherent limitations Systems of controls designed to address specific control objectives are subject to inherent limitations of any internal control structure, and accordingly, errors or irregularities may occur and not be detected. Such measures cannot guarantee protection against fraudulent collusion especially on the part of those holding positions of authority or trust. Conclusion Based on the foregoing: |
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| 1. | in our opinion, during the period from [year start date] to 31 March 2003: | ||
| a.1 | the company has properly kept all securities to which section 83(3)(a)(vi) of the Securities Ordinance applies in accordance with section 81 or 81A, as the case may be, of the Securities Ordinance; | ||
| b. | the company has properly kept the records required to be kept by it under section 83 of the Securities Ordinance; and | ||
| c.1 | the company has properly kept all trust accounts in accordance with section 84 of the Securities Ordinance; | ||
| 2. | in our opinion: | ||
| a. | the company has correctly compiled the attached returns as referred to in section 3(1)(b) of the Securities and Futures (Accounts and Audit) Rules made up to [year end date] from the records of the company; | ||
| b.1 | during the period from 1 April 2003 to [year end date], the company had systems of control in place that were adequate to ensure compliance with: | ||
| i. | sections 4, 5, 6, 8(4), 10 and 11 of the Securities and Futures (Client Money) Rules; and | ||
| ii. | sections 4(4), 5, 10(1) and 12 of the Securities and Futures (Client Securities) Rules; and | ||
| c. | during the period from 1 April 2003 to [year end date], the company has complied with: | ||
| i. | section 3 of the Securities and Futures (Keeping of Records) Rules; | ||
| ii.1 | sections 4, 5, 6, 8(4), 10 and 11 of the Securities and Futures (Client Money) Rules; and | ||
| iii.1 | sections 4(4), 5, 10(1) and 12 of the Securities and Futures (Client Securities) Rules; and | ||
| 3. | during the period from [year start date] to 31 March 2003 we are not aware of any instances where the company has contravened the Financial Resources Rules, and during the period from 1 April 2003 to [year end date] we are not aware of any instances where the company has contravened the Securities and Futures (Financial Resources) Rules. | ||
| Use of this report This report is intended solely for submission by the company to the SFC and is not intended to be, and should not be, used by anyone for any other purpose. ABC & Co. Certified Public Accountants Hong Kong Date |
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___________________________________________________Note 1: Not applicable where the licensed corporation does not hold client assets. |
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Example 3 - compliance report by auditors - associated entity of intermediary
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| a. | the company has systems of control in place that are adequate to ensure compliance with: | ||
| i.1 | sections 4, 5, 6, 8(4), 10, 11 of the Securities and Futures (Client Money) Rules; and | ||
| ii. | sections 4(4), 5, 10(1) and 12 of the Securities and Futures (Client Securities) Rules; and | ||
| b. | the company has complied with: | ||
| i. | section 4 of the Securities and Futures (Keeping of Records) Rules; | ||
| ii.1 | sections 4, 5, 6, 8(4), 10 and 11 of Securities and Futures (Client Money) Rules; and | ||
| iii. | sections 4(4), 5, 10(1) and 12 of the Securities and Futures (Client Securities) Rules. | ||
| It is our responsibility to form an independent conclusion on the above, based on our engagement, and to report
our conclusion to you. Basis of conclusion We conducted our engagement in accordance with Standards on Assurance Engagements and with reference to Practice Note 820 "The audit of licensed corporations and associated entities of intermediaries" issued by the Hong Kong Institute of Certified Public Accountants. In relation to our conclusion (a) below, our work was based upon obtaining an understanding of the relevant control procedures in operation by enquiry of management and review of documents supplied to us. Our work included tests of control procedures and policies to establish whether relevant control objectives and internal control measures were designed by management for meeting the requirements specified in the document "Suggested Control Technique and Procedures for Enhancing a Firm's Ability to Comply with the Securities and Futures (Client Securities) Rules and the Securities and Futures (Client Money) Rules" issued by the SFC. In relation to our conclusion (b) below, we have performed such procedures as we considered necessary. Inherent limitations Systems of controls designed to address specific control objectives are subject to inherent limitations of any internal control structure, and accordingly, errors or irregularities may occur and not be detected. Such measures cannot guarantee protection against fraudulent collusion especially on the part of those holding positions of authority or trust. Conclusion Based on the foregoing, in our opinion: |
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| a. | during the [period from 1 April 2003 to/year ended] [year end date], the company had systems of control in place that were adequate to ensure compliance with: | ||
| i.1 | sections 4, 5, 6, 8(4), 10 and 11 of the Securities and Futures (Client Money) Rules; and | ||
| ii. | sections 4(4), 5, 10(1) and 12 of the Securities and Futures (Client Securities) Rules; and | ||
| b. | during the [period from 1 April 2003 to/year ended] [year end date], the company has complied with: | ||
| i. | section 4 of the Securities and Futures (Keeping of Records) Rules; | ||
| ii.1 | sections 4, 5, 6, 8(4), 10 and 11 of the Securities and Futures (Client Money) Rules; and | ||
| iii. | sections 4(4), 5, 10(1) and 12 of the Securities and Futures (Client Securities) Rules. | ||
| Use of this report This report is intended solely for submission by the company to the SFC and is not intended to be, and should not be, used by anyone for any other purpose. ABC & Co. Certified Public Accountants Hong Kong Date |
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