Accountants: Disciplinary Proceedings and “Token” Sanctions

As previously noted in Industry Insights (June 2017, Auditors’ Professional Standard Headed for Final Appeal), in Registrar of HKICPA v Wong & Anor, FACV 10/2017, 22 December 2017, the substance of a complaint against the appellant accountants was that they failed to apply a professional standard in connection with an audited company’s compliance with Hong Kong Accounting Standard 39 (‘HKAS 39‘ – “Financial Instruments: Recognition and Measurement”) in respect of an available-for-sale financial asset.

Leaving aside the costs, given the small fine and non-public nature of the sanction (in this case) it would have been understandable if the accountants had decided not to challenge the outcome of the disciplinary proceedings. However, the matter made its way to the Court of Appeal and Court of Final Appeal (‘CFA‘).

The CFA held (at paragraph 41 of its unanimous judgment) that on a true construction of HKAS 39 an impairment adjustment must be made in respect of an available-for-sale financial asset consisting of an equity instrument once there had been a significant or prolonged decline in its fair value.

Attention then turned to the arguably more interesting issue. Namely, did a complaint that a certified public accountant “failed or neglected to observe, maintain or otherwise apply a professional standard”, incorporate a standard of reasonableness capable of excusing an auditor notwithstanding a default? This question was answered in the negative. The complaint did not import a standard of reasonableness capable of exonerating the accountants.

The CFA concluded that the relevant disciplinary committee had been entitled to find the complaint established.

Not to be lost in all of this is that the complaint was at the least serious end of the spectrum, with the aim of (for example) enforcing the application of a published standard in the interests of professional practice rather than punishment. It appears to have been accepted by the relevant disciplinary committee that it was justified in taking a “very lenient” approach that merited a token sanction.

Interestingly, the HKICPA has recently published on its website a “Guideline to Disciplinary Committee for Determining Disciplinary Orders”, setting out the approach to be adopted in deciding on appropriate sanctions. Going forward, it will be interesting to see the extent to which the Financial Reporting Council (once it takes over responsibility for regulation of listed company auditors after the government’s reforms are introduced) will move towards more guidance, remedial measures and (where appropriate) education and training for less serious regulatory matters involving the application of highly technical professional standards.


Senior Consultant and Accredited Mediator, RPC

A commercial disputes lawyer with over 35 years' experience, David has extensive experience in handling the defence of professional indemnity, financial lines and other special risks claims as well as advising insurers in relation to such claims.

David has worked on the defence of claims in various jurisdictions including England, Hong Kong, Singapore, Malaysia, the PRC, Taiwan, Bermuda and the BVI.  He also has significant experience in handling regulatory and disciplinary matters.

He has considerable experience providing general risk management advice to professionals such as accountants, solicitors, insurance brokers, surveyors and stock-brokers. 

Most recently, he has been developing a practice as a commercial mediator. David is accredited as a mediator by both the Centre for Effective Dispute Resolution (CEDR) and the Hong Kong Mediation Accreditation Association Limited (HKMAAL).

Associate, RPC