Hong Kong CPA Body Disciplines Ernst & Young and a Partner

Ernst & Young and a partner have been reprimanded by a disciplinary committee of the Hong Kong Institute of Certified Public Accountants (HKICPA) for their failure or neglect to observe, maintain or otherwise apply a professional standard issued by the institute.

On June 17, Wong Yat Fai and Ernst & Young were ordered to pay a penalty of HK$35,000 and HK$50,000 respectively to the Institute.

In addition, they were ordered to pay costs of the disciplinary proceedings of HK$550,000.

Ernst & Young was the reporting accountant for the listing of a company in Hong Kong in June 2002. (The HKICPA did not identify the company, but the website Webb-site Reports said it was Global Trend Intelligent Technologies.) Ernst & Young issued an unmodified auditors' report on the company's financial statements for the year ended 31 December 2002.

Wong was the engagement partner.

In June 2003, the shares of the company were suspended from trading and the anti-graft agency ICAC carried out investigations into the company for suspected irregularities.

In September 2004, two members of the company's top management were convicted in the District Court for conspiring to use false business documents. The company was delisted by the Stock Exchange of Hong Kong in 2005.

An investigation committee was set up under the Professional Accountants Ordinance to investigate the work carried out by Ernst & Young as the company's reporting accountant and auditor.

Upon investigation and having considered the information available, the Investigation Committee lodged a complaint against Wong and Ernst & Young under section 34(1)(a)(vi) of the ordinance.

The Disciplinary Committee found, on the admission by Wong and Ernst & Young, that they failed or neglected to observe, maintain or otherwise apply Statement of Auditing Standards 230 "Documentation" in their audit of the company's financial statements for the year ended 31 December 2002.

The two parties did not document in the working papers the audit procedures adopted for maintaining control over the external confirmation exercise and for reaching an audit conclusion regarding the existence and valuation of deferred development cost of a project amounting to HK$40 million.

Under the ordinance, if Wong and Ernst & Young are aggrieved by the order, they may give notice of an appeal to the Court of Appeal within 30 days after they are served the order.

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