CACV 42/2019
[2021] HKCA 1821
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO 42 OF 2019
(ON APPEAL FROM PROCEEDINGS NO D-16-1226P, M119510)
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| BETWEEN | | |
| | HONG KONG INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS | Complainant |
| | and | |
| | NG KWOK CHING | Respondent |
____________________
Before: Hon Yuen, Chu and Chow JJA in Court
Date of Hearing: 24 November 2021
Date of Judgment: 9 December 2021
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JUDGMENT
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Hon Chow JA (giving the Judgment of the Court):
INTRODUCTION
1. This is the Respondent (“Mr Ng”)’s appeal against the order of the Disciplinary Committee (“the Disciplinary Committee”) of the Hong Kong Institute of Certified Public Accountants (“the Institute”) contained in its “Order & Reasons for Decision” (“the Decision”) dated 28 December 2018, in which the Disciplinary Committee found two complaints preferred by the Practice Review Committee of the Hong Kong Institute of Certified Public Accountants (“the Practice Review Committee”) against Mr Ng proven, and imposed the following sanctions on him:
(1) cancellation of Mr Ng’s practicing certificate effective on the 42nd day of the order, and an order that a practicing certificate should not be issued to Mr Ng for a period of 12 months commencing from the 42nd day after the date of the order, under s 35(1)(da) and (db) of the Professional Accountants Ordinance, Cap 50 (“the Ordinance”);
(2) a reprimand under s 35(1)(b) of the Ordinance; and
(3) a penalty of HK$50,000 under s 35(1)(c) of the Ordinance.
The Disciplinary Committee also ordered Mr Ng to pay the Practice Review Committee’s costs and expenses of and incidental to the disciplinary proceedings in the sum of HK$55,000 under s 35(1)(iii) of the Ordinance.
BACKGROUND FACTS
2. Mr Ng was the sole proprietor of a practice known as Jeremy Ng & Company (formerly known as Tang & Ng), Certified Public Accountants, (“the Practice”). He was responsible for the Practice’s quality control and the quality of its audit engagements. The Practice did not employ any staff, but engaged a subcontractor to perform, or assist in the performance of, its audit work.
3. In December 2012, the Practice was selected by the Practice Review Committee for initial practice review, in the course of which various deficiencies in relation to its quality control system, audit methodology and audit engagements were identified. The Practice Review Committee directed the Practice to carry out various follow-up actions to address those deficiencies. The Practice did not do as directed, on the basis that it would cease to exist after its registration expired at the end of 2013. However, the Practice renewed its registration in 2014. Accordingly, the Practice Review Committee instructed the Practice to perform the follow-up actions to address the aforesaid deficiencies prior to a follow-up visit by the Practice Review Committee scheduled for November 2014.
4. The follow-up visit by the Practice Review Committee was later deferred to February 2015 upon Mr Ng’s representation that he was then involved in some court cases. In January 2015, Mr Ng requested for a further postponement of the follow-up visit based on the same reason.
5. The Practice later submitted to the Institute a “Declaration of Non-engagement in the Practice of Public Accounting” (“the Declaration”) dated 16 February 2015, in which the Practice confirmed that:
(1) no audit report had been issued in the name of the Practice since the initial practice review in December 2012;
(2) Mr Ng did not intend to engage in the practice of public accounting pertaining to audit, assurance and related services in the next 12 months after the date of the Declaration; and
(3) should Mr Ng re-commence such engagements, he would notify the Institute’s Quality Assurance Department (“QAD”) in writing within 1 month from the re-commencement date.
6. By a letter to the Practice (for the attention of Mr Ng) dated 27 March 2015, the Practice Review Committee stated that they trusted the Declaration to have been made in good faith, and requested Mr Ng to inform the QAD once the Practice resumed the provision of audit services.
7. In September 2015, in response to the Practice Review Committee’s reminder, Mr Ng informed the QAD that the Practice had performed an audit on a private entity (Lam Seng Hang Limited, “Client L”) for the year ended 31 December 2014. In view of the fact that the Practice had resumed the provision of audit services, the Practice Review Committee made a follow up visit to the Practice in February 2016, and identified a number of deficiencies in the Practice’s audit of Client L’s financial statements. It also transpired, from the Practice Review Committee’s review of the relevant audit papers, that, notwithstanding the Declaration dated 16 February 2015:
(1) the Practice had issued an engagement letter dated 17 November 2014 setting out the basis on which the Practice would act as Client L’s auditors;
(2) the Practice had issued a professional clearance request to the previous auditor of Client L on 26 November 2014;
(3) Mr Ng had prepared a “Planning Memorandum” dated 15 February 2015 relating to the audit of Client L’s financial statements for the year ended 31 December 2014; and
(4) Mr Ng had issued an audit report dated 30 March 2015 (“the Audit Report”) in respect of Client L’s financial statements for the year ended 31 December 2014.
8. Upon review of the Practice’s audit working papers for Client L, the Practice Review Committee considered that Mr Ng had failed to perform adequate audit procedures for a number of significant accounts, representing over 67% of its net assets, reported in the financial statements of Client L. In addition, the Practice Review Committee found that the audit documentation did not contain information required under the relevant auditing standard (namely, the person who performed the audit work and the date when such work was completed). The findings of the Practice Review Committee were set out in a “Reviewer’s Report” dated 16 November 2016.
9. By a letter dated 6 December 2016, the Practice Review Committee informed Mr Ng that, having considered the Reviewer’s Report (a draft of which had previously been given to Mr Ng for his responses), it had decided to raise a complaint against him under s 32D(5) of the Ordinance.
10. On 5 July 2017, the Practice Review Committee preferred two disciplinary complaints (“the First Complaint” and “the Second Complaint” respectively, and “the Complaints” collectively) against Mr Ng to the Council of the Institute:
(1) The First Complaint
“Section 34(1)(a)(vi) of the Professional Accountants Ordinance (‘PAO’) applies to the Respondent in that he had failed or neglected to observe, maintain or otherwise apply a professional standard namely, paragraph 6 of HKSA[1] 500 in that he had failed to design and/or perform audit procedures that are appropriate for the purpose of obtaining sufficient appropriate audit evidence in relation to the audit of the financial statements for Client L for the year ended 31 December 2014.”
(2) The Second Complaint
“Section 34(1)(a)(vi) of the PAO applies to the Respondent in that he had failed or neglected to observe, maintain or otherwise apply a professional standard namely, paragraph 9 of HKSA 230 in that he had failed to record the person who performed the audit work and the date when such work was completed in relation to the audit of the financial statements of Client L for the year ended 31 December 2014.”
11. On 24 January 2018, the Clerk to the Disciplinary Committee gave Notice of Commencement of Proceedings to Mr Ng in respect of the Complaints. In that notice, it is expressly stated, inter alia, that:
(1) the Disciplinary Committee Proceedings Rules place emphasis on written submissions;
(2) the Complainant/Respondent’s Case must set out the Complainant/Respondent’s submissions on all relevant matters and annex all documentary evidence on which the Complainant/Respondent relies (as stated in Rule 17 of the Disciplinary Committee Proceedings Rules); and
(3) the principal purpose of the oral hearing is to allow the Disciplinary Committee to question the parties and clarify matters. While the procedures allow for oral submissions to be made by the parties, all relevant matters should have been fully addressed in the written submissions and it is therefore anticipated that the oral submissions (to the extent that they are necessary at all) will be brief.
12. On 14 February 2018, the Practice Review Committee submitted the Complainant’s Case, and on 20 March 2018, Mr Ng submitted his written submissions in the form of a “Response: Complaint’s Case dated 14 February 2018” (“the Respondent’s Case”). Thereafter, the Practice Review Committee submitted the Complainant’s Reply dated 25 April 2018, and Mr Ng submitted his “Respondent’s Reply to ‘Complainant’s Reply’” dated 13 June 2018 (“the Respondent’s Reply”).
13. A hearing of the Complaints was conducted before the Disciplinary Committee on 27 September 2018. By a letter dated 28 September 2018, the Disciplinary Committee informed the parties that it had unanimously found the Complaints against Mr Ng proven. Submissions on sanctions and costs were made by the Practice Review Committee and Mr Ng on 12 October 2018 and 7 November 2018 respectively. On 28 December 2018, the Disciplinary Committee handed down the Decision.
14. The Disciplinary Committee’s reasons for finding the Complaints proven, and its reasons for the sanctions and order as to costs are set out in [19] - [31] of the Decision, as follows:
“Facts and circumstances in support of the First Complaint
[19] The auditor’s report issued by the Respondent for Client L stated that the auditor had conducted the audit in accordance with HKSAs issued by the Institute.
[20] According to paragraph 6 of HKSA 500, an auditor is required to design and perform audit procedures that are appropriate in the circumstances for the purpose of obtaining sufficient appropriate audit evidence.
[21] The audit working papers of Client L did not show any evidence that the Practice had properly carried out audit procedures for the purpose of obtaining sufficient appropriate audit evidence in respect of the following accounts which are material to the financial statements. The aggregate value of these accounts represented 67% of Client L’s net assets as at 31 December 2014.
[21.1] Interest in a subsidiary and an associate
(a) The working papers show that the balance of interests in a subsidiary as at the year end date was HK$1,815,548 (including an amount due from a subsidiary of HK$1,815,546) and the balance of investment in an associate was HK$579,975.
(b) The Respondent did not carry out any audit work to:
(i) verify the ownership of the investments in the subsidiary and the associate by Client L as at the year end date;
(ii) ascertain the existence of the amount due from the subsidiary by performing alternative procedures on the non-replied confirmation from the subsidiary before the auditor’s report date;
(iii) assess the recoverability of the amount due from the subsidiary; and
(iv) perform impairment assessment on the investment in the associate even though it was documented that the associate would be wound up in 2015.
[21.2] Financial assets at fair value through profit or loss
(a) The working papers show that the balance of financial assets at fair value through profit or loss as at the year end date was HK$28,946,282. Such balance comprised investments of listed shares in Hong Kong and overseas of HK$11,486,720 and HK$17,459,562 respectively.
(b) No audit procedures were carried out to ascertain the ownership of the shares and their relevant market values as at the year end date.
[21.3] Amounts due to directors and shareholders
(a) The working papers show that the balances of amounts due to directors and shareholders as at the year end date were HK$539,765 and HK$794,499 respectively.
(b) The audit documentation indicated that the auditor had sent confirmation requests to some of the directors and shareholders to ascertain the balances due from Client L as at the year end date. However, there was no evidence showing that the auditor had performed any alternative procedures to obtain relevant and reliable audit evidence on the non-replied confirmations before the auditor’s report date.
[21.4] Audit procedures under HKSA 580 ‘Written Representations’
(a) During the follow up visit, the Reviewer noted that the management representation letter dated 31 January 2015 was only received by the Respondent in March 2016, subsequent to the auditor’s report dated 30 March 2015.
(b) There was no evidence that the Practice had obtained the management representation as part of the audit evidence before the auditor’s report date to substantiate its compliance with HKSA 580 in the audit of Client L.
[22] On the basis of the above findings, the Practice is considered to have failed to comply with paragraph 6 of HKSA 500 in that it did not obtain sufficient and appropriate audit evidence such that a reasonable conclusion could be drawn on the relevant accounts.
Facts and circumstances in support of the Second Complaint
[23] According to paragraph 9 of HKSA 230, an auditor shall record who performed that audit work and the date such work was completed.
[24] The Respondent admitted to the Reviewer that the audit of Client L was performed by a subcontractor. But since the subcontractor did not sign or date any of the working papers of Client L, there was no information in the audit working papers indicating the person who performed the audit work and the date when such work was completed in accordance with paragraph 9 of HKSA 230.
Findings of the Disciplinary Committee
[25] A hearing was conducted before the Disciplinary Committee on 27 September 2018 for full consideration. After the hearing, the Committee found the First Complaint and the Second Complaint (the ‘Complaints’) proven.
[26] In considering the sanctions to be made in this case, the Disciplinary Committee has had regard to all the matters brought forward by the Complainants and the Respondent, including the particulars in support of the Complaints, and the conduct of the Respondent throughout the proceedings and the hearing on 27 September 2018.
[27] The Complaints resulted from repeated findings of deficiencies from a follow up review on the Respondent’s practice. The Committee is of the view that the Respondent had failed to address the audit deficiencies found by the practice reviewer.
[28] In addition, the Respondent’s representations throughout the proceedings and the hearing on 27 September 2018 demonstrated that he lacked understanding at the level expected of a competent professional accountant, and in particular, about the difference between the role of an auditor and an accountant. The Respondent admitted to have prepared the accounts for Client L, without due regard to his independence as an auditor. As a result, the Respondent failed to envisage the need to perform adequate audit procedures on Client L’s accounts which an independent auditor would otherwise perform. The Respondent even claimed that extracting the total from client ledgers for the ‘creation of financial statements’ is part of ‘analytical auditing’.
[29] Further, the Committee is concerned with the Respondent’s repeated representation that for a dormant company or a private company of limited size, a ‘full audit’ should not be carried. The Committee is of grave concern if practitioners draw different auditing standards based on the size of the company.
[30] During the hearing, the Committee also found that the accuracy of the financial statement of Client L is somewhat questionable. For example, the fair value loss on financial asset at fair value was calculated based on the Respondent’s claim that he checked against the closing prices of the respective listed securities’ websites. There have not been any records of the Respondent’s review of the websites at the relevant time, apart from a record of the bank statement of Client L showing its portfolio value as shown in the bank statement of Client L. Even if the benefit of doubt is given to the Respondent that he did review the websites at the relevant times, it seems to the Committee, that the Respondent should have enquired into the actual investment costs of the additions in number of shares held. The Committee is of the view that there may be more similar questions that can be made on the accuracy of the financial statement of Client L and such questions are avoidable should adequate audit procedures have been carried out.
[31] As such, the Committee found the Complaints proven and considered the matter serious that a cancellation of the Respondent’s practicing certificate is appropriate.”
THIS APPEAL
15. Mr Ng lodged an appeal against the Decision by a Notice of Appeal dated 27 January 2019. In the Notice of Appeal, Mr Ng raised the following general grounds of appeal:
“(1) Procedural defects
(2) New scope created in the context of 2 previous complaints
(3) Failure to deal with key arguments in the prior case
(4) Some facts and interpretation were new and wrong
(5) Insufficient auditing consideration in a paper company environment
(6) Lack of consideration for initials on auditing working papers
(7) Failure to consider circumstantial matters”.
16. These general grounds of appeal were elaborated in a 34-page “Supplementary Notice of Appeal” dated 12 August 2019. Mr Ng further elaborated on his grounds of appeal in his Skeleton Argument dated 29 October 2021 and an “Opening Submission by the Respondent” dated 17 November 2021 lodged shortly before the hearing of the appeal on 24 November 2021.
17. As one can gather from his Supplementary Notice of Appeal, Skeleton Argument and Opening Submission, and his oral submissions before this court, Mr Ng’s grounds of appeal can broadly be summarized as follows:
(1) The Practice Review Committee was guilty of “fabrication of evidence”.
(2) The Disciplinary Committee failed or neglected to consider contemporaneous documents.
(3) The Disciplinary Committee failed to exercise the duty of care and diligence.
(4) The Practice Review Committee abused his trust and chose to “hide the Permanent File”.
(5) The Practice Review Committee failed to produce original documents, in breach of the best evidence rule.
(6) The Disciplinary Committee failed to go over the relevant documentation with him at the disciplinary hearing, ambushed him with new questions, and refused his request to lodge written closing submissions.
(7) The Disciplinary Committee’s decision in respect of the First Complaint is all wrong.
(8) The Disciplinary Committee’s decision in respect of the Second Complaint is wrong.
(9) The Practice Review Committee wrongly found that he prepared the accounts of Client L (ie acting as its accountant), and also acted as auditor of Client L, without due regard to the independence of the latter role.
(10) The penalty imposed is unreasonably high.
DISCUSSION
18. In respect of Ground (1), Mr Ng’s allegation of “fabrication of evidence” on the part of the Practice Review Committee is based on the fact that the documents placed before the Disciplinary Committee by the Practice Review Committee were “black and white” photocopied documents, whereas his original audit working papers containing “audit tick marks, comments, initials and highlights” were red or blue in colour. This ground of appeal is unsustainable, because:
(1) Mr Ng never raised any complaint about this matter to the Disciplinary Committee.
(2) There is no reason to believe that the members of the Disciplinary Committee were not aware of the fact, which Mr Ng says is common practice, that auditors would mark audit working papers using different colours.
(3) There is no evidence that the members of the Disciplinary Committee were in any way misled by the “black and white” photocopied documents used in the disciplinary proceedings.
(4) The fact that the Practice Review Committee produced “black and white” photocopied documents for use in the disciplinary proceedings cannot sensibly be regarded as “fabrication of evidence”.
19. In respect of Ground (2), Mr Ng’s allegation that the Disciplinary Committee failed or neglected to consider contemporaneous documents relates to those documents which were “dated” prior to the date of the Audit Report, ie 30 March 2015, but which the Disciplinary Committee found to have been received by Mr Ng after that date, including, in particular, the “management representation letter dated 31 January 2015” referred to in paragraph 21.4 of the Decision. The Disciplinary Committee’s finding was, however, based on the Practice’s written confirmation, titled “Additional working papers of Lam Seng Hang Limited (the ‘Company’) for the year ended 31 December 2014” signed by Mr Ng dated 31 March 2016 (“the Second Confirmation”), that various documents (26 pages in total), including the said management representation letter, were received by the Practice after the audit report date. Mr Ng did not, in his written or oral submissions to the Disciplinary Committee, suggest that his written confirmation was incorrect. In our view, the Disciplinary Committee was fully entitled to make the finding at paragraph 21.4 of the Decision based on Mr Ng’s own admission or confirmation.
20. In respect of Ground (3), the complaint that the Disciplinary Committee failed to observe the duty of care and diligence is based on the fact that a “Permanent File” was not presented to the Disciplinary Committee, and the Disciplinary Committee did not review the documents in that file. However, in the Practice’s written confirmation, titled “Working papers of Lam Seng Hang Limited (the ‘Company’) for the year ended 31 December 2014” signed by Mr Ng dated 31 March 2016 (“the First Confirmation”), he confirmed that the documents attached thereto, consisting of 105 pages of documents, comprised “the complete audit confirmation relating to the audit of the Company for the year ended 31 December 2014”. A similar statement appeared in the Second Confirmation. The “Permanent File” was not included in the two batches of documents attached to the First Confirmation and Second Confirmation respectively. There was no suggestion by Mr Ng before the Disciplinary Committee that the “Permanent File” contained any document which was relevant to the audit, or ought to be considered by the Disciplinary Committee in considering the Complaints. Mr Ng’s complaint of failure to exercise the duty of care and diligence on the part of the Disciplinary Committee is unsustainable. Anyhow, it would appear from page 000001 of the documents attached to the First Confirmation that what had been moved to the Permanent File were only “Statutory records”, including “B.R. copy files”, “A.R. copy files” and the “green book”. It has not been shown or demonstrated by Mr Ng that those documents could assist him to answer the specific complaints mentioned in paragraphs 21.1 to 21.4 of the Decision.
21. Under Ground (4), Mr Ng alleges that the Practice Review Committee abused his trust and chose to “hide the Permanent File”. We have already dealt with the complaint in respect of the Permanent File. In so far as the allegation of abuse of trust is concerned, Mr Ng’s argument is that he was asked to sign the two Confirmations, which he describes as “2 receipts on 2 small pieces of papers when the Respondent was told to pick up his own files in its offices”. Mr Ng says that he read the first receipt, but not the second one because they “looked so alike”, thinking that the second one was a copy for him. This complaint of Mr Ng has plainly no substance, in view of the following considerations:
(1) Mr Ng is a highly educated and experienced certified public accountant. It is incredible that he signed the First and Second Confirmations without reading the contents thereof.
(2) According to Mr Ng, he initialed each and every page of the two batches of documents attached to the two Confirmations, one consisting of 105 pages and the other 26 pages. We do not accept that he could have mistaken the Second Confirmation as a mere copy of the First Confirmation.
22. Ground (5) complains about the failure of the Disciplinary Committee to observe the best evidence rule. This is in substance the same complaint under Ground (1), which we have already dealt with. In any event, strict rules of evidence do not apply to the disciplinary proceedings in this case (see Rule 14 of the Disciplinary Committee Proceedings Rules).
23. Ground (6) complains that the Disciplinary Committee failed to go over the relevant documentation with Mr Ng at the disciplinary hearing, and “ambushed” him with new questions. As clearly stated in the Notice of Commencement of Proceedings dated 24 January 2018 served on Mr Ng, the purpose of the oral hearing was to allow the Disciplinary Committee to question the parties and clarify matters. In our view, the Disciplinary Committee was under no duty to go over any documentation with Mr Ng, and was entitled to ask him questions, which we are satisfied were relevant and proper ones.
24. Mr Ng also complains that his request for time to make closing submissions was rejected by the Disciplinary Committee. The Disciplinary Committee Proceedings Rules permit a respondent to make an oral opening submission and an oral closing submission (which Mr Ng did at the hearing before the Disciplinary Committee), but not written opening or closing submissions (see Rule 30 thereof). We consider that the Disciplinary Committee was entitled to refuse Mr Ng’s request to file written closing submissions, having regard to the fact, as made clear in the Notice of Commencement of Proceedings, that the disciplinary process is intended to be based primarily on written submissions in the cases presented before the oral hearing where the parties are required to fully set out their respective cases in writing.
25. Under Ground (7), Mr Ng raises various points going to the merits of the Complaints. The principles which the court applies in considering such a ground of appeal are well established:
“Every professional body is entitled to apply its own professional judgment to a case in which one of its members is called on to justify his conduct in (allegedly) failing to observe a standard or guideline laid down by that professional body for the protection of those dealing with members of that professional body. It is not, in my judgment, for this court to second-guess the professional judgment of a Disciplinary Committee such as this except where it can be seen that it has plainly misread the evidence and come to a conclusion which is contrary to the evidence or is otherwise plainly wrong.” (Tong Pon Wah v Hong Kong Society of Accountants [1998] 2 HKLRD 427, at 440D per Godfrey JA).
26. We shall deal with the main arguments raised by Mr Ng at the hearing of the appeal.
27. First, Mr Ng argues that the Disciplinary Committee’s finding that he did not carry out any audit work in respect of Client L’s interests in a subsidiary and an associate is wrong.
(1) In the Statement of Financial Position of Client L as at 31 March 2014 in the Audit Report, it is stated that (i) Client L’s interest in a subsidiary (comprising unlisted shares at cost of HK$2 and an amount due from the subsidiary) is in the amount of HK$1,815,548 in 2014, and HK$1,783,764 in 2013, and (ii) Client L’s investment in an associate is in the amount of HK$579,975 in both 2013 and 2014.
(2) The Disciplinary Committee found that Mr Ng did not carry out any audit work to (i) verify the ownership of the investments in the subsidiary and the associate by Client L as at the year end date; (ii) ascertain the existence of the amount due from the subsidiary by performing alternative procedures on the non-replied confirmation from the subsidiary before the auditor’s report date; (iii) assess the recoverability of the amount due from the subsidiary; or (iv) perform impairment assessment on the investment in the associate even though it was documented that the associate would be wound up in 2015 (see paragraph 21.1(b) of the Decision).
(3) Mr Ng relies on a document (at page 000095 attached to the First Confirmation) as a “complete” answer to this finding of the Disciplinary Committee. That document, which sets out the amounts owed by the subsidiary to Client L during the period from 31 December 2013 to 31 December 2014, records, amongst other things, (i) an opening balance of HK$1,783,762.38, (ii) debits of HK$140,000 for “office rent 2013” and “Wing On rent 2014” on 31 December 2013 and 31 December 2014 respectively, (iii) credits of various sums described as building management fee, rates, or other charges paid by the subsidiary to Client L during that year, and (iv) a closing balance of HK$1,815,546.38.
(4) We do not see how this document can demonstrate the Disciplinary Committee’s aforesaid finding to be wrong.
28. Second, Mr Ng argues that the total value of Client L’s investment in the associate (HK$579,975) comes to less than 1.5% of the net assets of the company (HK$44,891,181), and it was “OK” even if he did not perform any audit verification of that item. Whether an item in the financial statement of a company is sufficiently material to require audit verification to be performed is a matter of professional assessment for the Disciplinary Committee which this court should be slow to interfere with. We do not consider that there is any sufficient basis to interfere with the Disciplinary Committee’s judgment in this matter.
29. Third, Mr Ng challenges the Disciplinary Committee’s findings at paragraphs 21.1 to 21.3 of the Decision, and argues that the Disciplinary Committee applied the “net asset” approach which is “not part of the HKSAs”.
(1) As correctly submitted by Mr Lau (for the Institute), the First Complaint was concerned with Mr Ng’s failure to design and/or perform audit procedures according to HKSA 500.
(2) Paragraph 1 of HKSA 500 states that this standard explains “what constitutes audit evidence in an audit of financial statements, and deal with the auditor’s responsibility to design and perform audit procedures to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion”, and paragraph 6 states that the auditor “shall design and perform audit procedures that are appropriate in the circumstances for the purpose of obtaining sufficient appropriate audit evidence”.
(3) As can be seen from paragraph 15 of the Complainant’s Case, the Practice Review Committee considered that Mr Ng failed to design or perform adequate audit procedures in respect of at least 3 significant accounts reported in Client L’s financial statements, namely, (i) interests in a subsidiary and an associate (representing 4% and 1% of the company’s net assets), (ii) financial assets at fair value (amounting to 64% of the company’s net assets), and (iii) amounts due to directors and shareholders (representing 36% and 54% of the company’s total liabilities). The Disciplinary Committee plainly agreed with that view.
(4) There is nothing in the materials before us to show that the Disciplinary Committee’s findings at paragraphs 21.1 to 21.3 of the Decision can be faulted.
30. Fourth, Mr Ng argues that Client L had no business and no staff, and no internal control was required. He also argues that he was entitled to apply the “materiality guideline” which “cuts down on the work on small balances that the Complainant insists on the need to design and perform procedures to audit them” (see paragraph 477 of Mr Ng’s Opening Submission).
(1) As mentioned above, the Practice Review Committee’s concerns relate to what they regarded as “significant accounts” reported in Client L’s financial statements. The Disciplinary Committee did not require Mr Ng to carry out “100% verification” as he alleges (see paragraph 76 of Mr Ng’s Skeleton Argument).
(2) The Disciplinary Committee was entitled, in our view, to find that Mr Ng’s failure to design and/or perform audit procedures in respect of those items referred to in paragraphs 21.1 to 21.3 of the Decision constituted a failure or neglect to observe, maintain or otherwise apply a professional standard for the purpose of s 34(1)(a)(vi) of the Ordinance.
(3) As for Mr Ng’s argument that the audit procedures referred to in paragraphs 21.1(b), 21.2(b) and 21.3(b) of the Decision need not be applied in the audit of a small or simple private company such as Client L, this argument is wrong as a matter of principle (see The Registrar of the Hong Kong Institute of Certified Public Accountants v Cheung Yiu Hung[2018] HKCA 463, at §34).
31. Fifth, Mr Ng challenges the Disciplinary Committee’s finding at paragraph 21.3 of the Decision, namely, that he had failed to perform any alternative procedures to obtain relevant and reliable audit evidence in respect of amounts due to directors and shareholders where the audit confirmations had not been received prior to the audit report date. Mr Ng argues that telephone confirmation is permissible, and there is no requirement as to when the audit confirmations may be received. Mr Ng has failed, however, to point to any provision in the HKSA which permits oral audit confirmation, or post-audit report written confirmation, to be relied upon. Further, the substance of the complaint is that, where no written confirmation of a debt has been received prior to the audit report date, the auditor ought to carry out alternative procedures to obtain relevant and reliable evidence in respect of the debt. This Mr Ng failed to do. We can see no valid basis to question the Disciplinary Committee’s finding at paragraph 21.3 of the Decision.
32. Sixth, Mr Ng challenges the Disciplinary Committee’s finding that he failed to carry out audit procedures to ascertain the ownership of the shares held by Client L and their market values as at the year end date (see paragraph 21.2(b) of the Decision). Mr Ng argues that the financial assets of Client L consisted of listed shares in Hong Kong and listed shares outside Hong Kong, and their existence could be ascertained from a monthly statement dated 31 July 2014 (at page 000103 attached to the First Confirmation). However, that statement only shows (i) Client L’s portfolio of shares in July 2014, and (ii) the fact that Client L received some dividends from those shares during the month of July 2014. It says nothing about the ownership of the shares or their market values as at the year end date.
33. Seventh, Mr Ng challenges the Disciplinary Committee’s finding that there was no evidence that the Practice had obtained the management representation as part of the audit evidence before the audit report date (see paragraph 21.4(b) of the Decision), arguing that Client L had orally confirmed the contents of the letter of representation, and agreed to bring the signed document to Hong Kong during a telephone conversation on 27 March 2015 (see paragraphs 486 to 488 of Mr Ng’s Opening Submission).
(1) In our view, it is clear that HKSA 580 requires an auditor to obtain written representations.
(2) Paragraph 3 of HKSA 580 states: “Written representations are necessary information that the auditor requires in connection with the audit of the entity’s financial statements. Accordingly, similar to responses to inquiries, written representations are audit evidence.”
(3) Paragraph 14 further states that the date of the written representation shall be as near as practicable to, but not after, the date of the auditor’s report on the financial statements.
(4) In our view, the Disciplinary Committee’s finding at paragraph 21.4(b) of the Decision cannot be faulted.
34. It is not necessary to deal with other minor points raised by Mr Ng in his written or oral submissions in this judgment, save to mention that we do not consider they give rise to any valid grounds of appeal.
35. Under Ground (8), Mr Ng argues that the Disciplinary Committee was wrong to find the Second Complaint (which concerned the failure to record the person who performed the audit work and the date when such work was completed) proved. Mr Ng said in court that: (i) the assistant whom he engaged did some calculation work only, but did not perform any audit work, (ii) he was not satisfied with the work done by the assistant and had torn up the calculation sheets done by her, (iii) he did not pay the assistant any remuneration, and (iv) the whole audit assignment was in fact done by him. What Mr Ng said in court is inconsistent with the case that he advanced before the Disciplinary Committee:
(1) In the Respondent’s Case, Mr Ng stated: “I hired a assistant who preferred to be anonymous because of another job with a listed co. in HK. Her Au CPA no. was provided to the [Practice Review Committee]. As this was the only employee, no name was needed. As CPA, we have to respect the privacy of people too. Such complaint is valid if there are more than one employee. There is no grey area for identity concern” [underlining original].
(2) In the Respondent’s Reply, Mr Ng stated: “If there was only 1 staff, her name needed not be written down. She could be identified easily in all occasions. It is possible that the Complainant could not identify the person because [the Complainant] was ignorant of the situation. It is still meaningless if John Smith was put down. The Respondent could respond instantly as to who prepared the documents.”
(3) At the hearing before the Disciplinary Committee, Mr Ng said: “Now, this woman work for a listed company in Hong Kong. He wanted to help me, but he doesn’t want - but she doesn’t want to show her name because she’s the only one. There’s no chance of mistaken or picking the wrong one to answer to - to held responsible - to - to hold responsible for anything. So, in a way, if she refers - actually, I remember. When they ask for the names, I gave her CPA number from Australia. Would - so in a way, I didn’t do it all on my own. We have two CPAs looking at the case. We felt that it was a very simple case and in a way, I apologise for taking so much of your time.” [emphasis added]
36. It is clear that the case which Mr Ng advanced before the Disciplinary Committee was that (i) the audit was done by him together with his assistant who was also a CPA, (ii) the assistant did not want her identity to be disclosed because she was at that time also working for a listed company, and (iii) it was not necessary to record the person who performed the relevant audit work because her identity could easily be ascertained without any risk of confusion or mistake.
37. It is not, in our view, open to Mr Ng to run a completely new and different case in the Court of Appeal to challenge the Disciplinary Committee’s finding and conclusion in respect of the Second Complaint. We also consider that the Disciplinary Committee’s finding and conclusion cannot be faulted on the basis of the evidence and materials before it.
38. Ground (9) challenges the Disciplinary Committee’s finding that Mr Ng prepared the accounts for Client L. This finding was based on his answer to the Disciplinary Committee at the disciplinary hearing: “We help them to do the - to come up to the totals and then we prepare the financial statements”. This evidence was also consistent with what Mr Ng stated in the Respondent’s Case: “There was no client staff. So everything was drawn up by the Res. The data came from procedures on review of documentation… Material misstatements were impossible as everything was done by the Res …”. Anyhow, whether Mr Ng took up the dual role of accountant and auditor of Client L does not form part of either Complaint.
39. Lastly, under Ground (10), Mr Ng argues that the penalty imposed by the Disciplinary Committee is unreasonably high. It is well established that the court would not interfere with the sanction imposed by a specialist tribunal whose members consist of members of the same profession such as the Disciplinary Committee in this case, unless the sanction is plainly wrong, excessive or disproportionate. So long as the sanction imposed falls within the reasonable range of options, the court will not intervene (see Registrar of the Hong Kong Institute of Certified Public Accountants v Leung Kam Man Victor, CACV 37/2016 (17 January 2017), at §§11-16). The sanctions imposed in this case are (i) cancellation of Mr Ng’s practising certificate and prohibition of issuing a new practising certificate to Mr Ng for a period 12 months, (ii) a reprimand, and (iii) a monetary penalty of HK$50,000. Taking into account the matters considered by the Disciplinary Committee at §§27-30 of the Decision, we do not consider the sanctions to be plainly wrong, excessive or disproportionate.
40. In all, we are not satisfied that there is any ground raised by Mr Ng which would cause this court to interfere with the Disciplinary Committee’s Decision.
DISPOSITION
41. Mr Ng’s appeal against the Decision is dismissed with costs. Taking into account the total lack of merits of the appeal, the seriousness of the allegations, rejected by us, which Mr Ng has made against the Practice Review Committee (including allegations of “fabrication of evidence”, “misrepresentation” and “spoliation of evidence”), and the fact that the Institute is a public body defending this appeal in the general interests of the accountancy profession with funds contributed by its members, we consider that there is no reason why it should be out of pocket for the difference between costs on a party-and-party basis and costs on an indemnity basis (see Lie Han Ji v The Registrar of the Hong Kong Institute of the Certified Public Accountants, CACV 265/2009 (24 April 2012), at §§10, and 15-17). Accordingly, we make an order that Mr Ng shall pay the Institute’s costs of and incidental to this appeal, to be taxed on an indemnity basis if not agreed.
| (Maria Yuen) | (Carlye Chu) | (Anderson Chow) |
| Justice of Appeal | Justice of Appeal | Justice of Appeal |
Mr Lau Ka Kin, instructed by Minterellison LLP, for the Complainant
The Respondent, acting in person
[1] Hong Kong Standard on Auditing.