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)