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AFRC’s Response to PricewaterhouseCoopers Whistle-blower Allegations
The evidence gathered during our review process does not support the following three allegations regarding PricewaterhouseCoopers’ quality management systems: Failure to establish and maintain an effective system of quality control to ensure audit quality and compliance with professional standards and applicable legal and regulatory requirements; Failure to adhere to professional standards in respect of the acceptance and continuance of its client relationship with China Evergrande Group for the provision of audits and other professional services; and Failure to assign appropriate personnel to key positions responsible for the firm’s system of quality management which might have compromised the monitoring functions of the firm. Regarding the allegation on the quality of the audits of China Evergrande Group, it is under a separate investigation by the AFRC into the relevant audits carried out by PricewaterhouseCoopers which is still ongoing. ... We are committed to upholding public trust in the auditing profession and will not hesitate in taking all necessary actions promptly to address any public concerns.
FRC issues (i) Consultation Conclusions and (ii) the 2021 Annual Inspection Report
On 17 June 2022, the FRC published an External Auditor’s Guide to Performing Root Cause Analysis (the RCA Guide ). RCA allows audit firms to discover the underlying causes of audit quality deficiencies and hence is a powerful tool for improving audit quality. The RCA Guide therefore intends to assist audit firms in performing a robust RCA and formulating a plan of action to prevent matters that may affect audit quality from recurring in their future audits. Ms Eva Lau, Acting Head of Inspection, remarked, “The Inspection Report and the RCA Guide enable audit firms’ proactive monitoring and timely remediating issues relating to audit quality.
Speeches and Presentations
Speeches and Presentations Presentation on a webinar delivered to members of the Society of Chinese Accountants and Auditors (SCAA) relating to Guidelines on selecting auditors and setting audit fees 19 June 2023 Chairman Dr Kelvin Wong’s presentation at Hong Kong Chartered Governance Institute (HKCGI)’s Annual Corporate and Regulatory Update 9 June 2023 Presentation for members of the Hong Kong Securities and Investment Institute (HKSI) relating to Best Practices in Corporate Governance in Selecting Auditors and Setting Audit Fees 24 May 2023 Presentation on a webinar delivered to members of the Hong Kong Chartered Governance Institute (HKCGI) 18 May 2023 Presentation on a webinar delivered to members of the CPA Australia relating to Guidelines on auditor selection and audit fees 16 May 2023 Presentation on common valuation-related audit deficiencies at HKICPA discussion forum 28 April 2023
Manager
Inspection Manager Responsibilities Inspect audit working papers to assess the degree of compliance with the professional standards. ... Communicate results of inspection with the audit firms. Fulfil other responsibilities as assigned. ... Solid technical background, with at least 3-years post-qualification audit experience. Extensive professional knowledge in financial reporting and auditing.
Disciplinary Cases
These deficiencies included: (i) facilitating and contributing to management’s inflation of the group’s reported profits and liquidity, (ii) failures to exercise professional scepticism despite elevated audit risks, (iii) a significant loss of audit independence, and (iv) the issuance of unmodified audit opinions despite not having obtained sufficient appropriate audit evidence (and, in some instances, despite knowing that such evidence was lacking). Substantial weaknesses in the auditor’s governance and monitoring controls in respect of the relevant audits were also identified. The engagement quality control reviewer failed to adequately evaluate the engagement team’s significant judgments and conclusions in the audits. ... This breached the fundamental principle of integrity and audit documentation requirements.
AFRC reminds PIE auditors to be prepared for undertaking PIE engagements
In the reminder, the AFRC reiterates its expectations for PIE auditors to: demonstrate a genuine intention to undertake PIE engagements; understand and comply with the more stringent regulatory requirements for PIE auditors to deliver high-quality audits; and allocate sufficient resources to audit engagements, establish an effective system of quality management, and enhance the audit team’s competence and capacity through continuing professional development. Upholding the highest standard of audit quality is the responsibility of PIE auditors who play a vital role in protecting the public interest. The AFRC is committed to supporting the healthy development of the accounting profession and fostering an environment for capable PIE auditors to undertake listed company audits. The AFRC is confident that this reminder will benefit PIE auditors who would leverage on our reminder to enhance their capability to deliver high-quality audits.
AFRC supports the Chief Executive’s 2025 Policy Address
Advancing technological innovation within financial reporting and audit practices will enable accounting professionals and audit firms to improve operational efficiency and deliver greater value to Hong Kong’s financial industry. ... The Council promotes the adoption of AI internally and across audit firms, not only to enhance processes, but to ensure that the profession remains agile and future-ready in a rapidly evolving financial landscape.” ... The AFRC remains dedicated to upholding rigorous standards in financial reporting and auditing, with a particular emphasis on continuously improving audit quality, to strengthen market confidence and reinforce Hong Kong’s reputation for excellence within the financial sector.”
FRC Acts on Deloitte China Whistle-blower Allegations
The allegations include claims: Of improper conduct by certain Deloitte staff members in performing the audits of two Hong Kong listed entities in 2016 and 2017, and other audits That those staff were still involved in performing audits of Hong Kong listed entities and other entities at the end of 2020 That the Firm has not appropriately handled related whistle-blower reports. Given the seriousness of the allegations and in order to protect the interests of the investing public and the wider public interest in audits of listed entities, the FRC has logged the allegations as a complaint, which is now being handled in accordance with our normal procedures. ... Maintaining justified public confidence in the quality of listed entity audits requires a dependable, swift and transparent response to the allegations.