Accountants: Auditors’ Professional Standard Headed for Final Appeal

Professional Accountants Ordinance (Cap. 50), Section 34 – Disciplinary Provisions

“(1) A complaint that –
(a) a certified public accountant …
(vi) failed or neglected to observe, maintain or otherwise apply a professional standard;

… shall be made to the Registrar who shall submit the complaint to the Council which may, in its discretion but subject to section 32D(7), refer the complaint to the Disciplinary Panels.” (italics added)

In Registrar of HKICPA v Wong & Anor, CACV 233/2015, 30 August 2016, the Court of Appeal declined to interfere with a professional disciplinary committee’s decision that the respondents had breached s. 34(1)(a)(vi) of the Professional Accountants Ordinance by failing or neglecting to observe, maintain or otherwise apply a professional standard; in this case, Hong Kong Accounting Standard 39 (“HKAS” – “Financial Instruments: Recognition and Measurement”) (Industry Insights, February 2017 – “Disciplinary Appeals”).

Although the Court of Appeal refused to grant the respondents permission to appeal, recently the Appeal Committee of the Court of Final Appeal has granted permission (FAMV 51/2016, 27 April 2017).

Besides the technical issue of the true construction of HKAS 39, regarding the test for whether an auditor should make an impairment adjustment to the fair value of an “available for sale asset”, the final appeal will determine two other interesting points which the Appeal Committee considered are of great general or public importance:

  • “Do auditors who, without more, wrongly interpret or apply a professional standard in discharging their function as auditors thereby commit a breach of s. 34(1)(a)(vi)?”; and
  • “Does s. 34(1)(a)(vi) … import a standard of reasonableness or other similar considerations which are relevant to assessing whether an auditor has ‘failed or neglected to observe, maintain or otherwise apply a professional standard’ within the meaning of such provision?”.

At the time of writing, the final appeal is due to be heard on 4 December 2017. The two principal points raised appear to have been reframed and clarified for the purposes of the appeal to the CFA (compared with the points before the Court of Appeal). The points also raise important issues concerning the application of s. 34(1)(a)(vi) and should be of interest to the auditing profession in Hong Kong, in the context of HKAS 39 and more generally.

Despite the relatively light sanctions handed down by the disciplinary committee of the regulator, the respondents appear to have a genuine difference of opinion regarding the application of the relevant professional standards; hence, the proceedings having gone so far (to date).

It will be interesting to see if the CFA finds merit in any of the appeal points, such as to allow the appeal, or if (as happens) it is more inclined to offer some jurisprudence but declines to interfere on the facts.


Partner, RPC