The Hong Kong Institute of Certified Public Accountants said it has ordered Lee Po Chi and Deloitte Touche Tohmatsu to pay an administrative penalty of HK$50,000 (US$6383) each for their failure or neglect to observe, maintain or otherwise apply professional standards by the institute.
Deloitte audited the consolidated financial statements of Hong Kong-listed Culturecom Holdings Limited (0343) and its subsidiaries for each of the years ended 31 March 2013 to 2016 and expressed unmodified auditor's opinions, HKICPA noted.
Lee, a certified public accountant was the engagement partner in those audits, the institute said.
The financial statements for 2014 and 2015 included an impairment loss of HK$29.6 million (US$3.8 million) on the group's investment in a listed company, said HKICPA, adding that this loss was inappropriately recorded, as the market value of the investee's shares was greater than their carrying amount in the two years.
According to Hong Kong-based activist investor David Webb, the listed company is China Bio Cassava, now known as Cloud Investment Holdings Limited (8129).
As a result, the group's net assets were understated in those financial statements. In the group's 2016 audited financial statements, the impairment loss was retrospectively reversed.
HKICPA concluded that the both Deloitte and Lee were in breach of Hong Kong Standard on Auditing (HKSA) 500 Audit Evidence in the audits of the 2014 and 2015 financial statements.
In addition to the administrative penalty, both Lee and Deloitte are also ordered to jointly pay the costs of HK$10,000 (US$1276).