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FRC concludes that a listed entity failed to properly account for the interests in two investees and its auditor failed to identify the misstatements
In the circumstances, there was a non-compliance with HKFRS 10 in respect of the non-consolidation of Investee B in the 2014 Financial Statements. The audit quality failure of the Auditor The investigation revealed that the Auditor failed to: (a) obtain sufficient appropriate audit evidence, e.g. the Articles of Association of Investee A, on which to base its conclusion on the accounting treatment of the Group’s interest in Investee A; (b) evaluate management representations with sufficient professional skepticism; (c) properly apply the applicable financial reporting standards in evaluating the accounting treatment of the Group’s interests in Investee A and Investee B; and (d) communicate the accounting treatment of the Group’s interests in Investee A and Investee B with those charged with governance as the determination of the treatment involved significant management judgment. ... Accordingly, the engagement partner and the engagement quality control reviewers failed or neglected to observe, maintain or otherwise apply the fundamental principle of professional competence and due care in the Code of Ethics for Professional Accountants. Our purpose in reporting publicly The FRC announces the adoption of reports on audit investigations and enquiries into financial reporting of listed entities: (a) to promote continuous improvement in the quality of auditing and financial reporting by all our regulatees; (b) to encourage audit committee members to consider the implications of our findings for the financial reporting and audits of their own listed entities; and (c) to maintain public confidence in the system for independent auditor regulation.
FRC finds that an auditor failed to obtain the evidence needed to evaluate the measurement and impairment assessment of goodwill arising from an acquisition
The above issues led to a material misstatement in the measurement of the goodwill as at 31 December 2016. The audit quality failure of the Auditor The Auditor appointed a valuer (Auditor’s Expert) to conduct a review of the Acquiree’s Fair Value. ... As a result, the engagement quality control reviewer also did not identify the material misstatement. ... Our purpose in reporting publicly The FRC announces the adoption of reports on audit investigations and enquiries into financial reporting of listed entities: (a) to promote continuous improvement in the quality of auditing and financial reporting by all our regulatees; (b) to encourage audit committee members to consider the implications of our findings for the financial reporting and audits of their own listed entities; and (c) to maintain public confidence in the system for independent auditor regulation.
Audit Focus for 2022 year-end audit
Audit Focus for 2022 year-end audit 22 December 2022 To ensure high audit quality, the Accounting and Financial Reporting Council ( AFRC ) today issues Audit Focus to remind auditors on the key audit issues and areas they should take into consideration and pay particular attention to when performing 2022 audit work. Ms Janey Lai, Head of Inspection, emphasized, “Auditors should have by now completed or are in the progress of conducting audit planning to ensure a successful and smooth audit. ... Ms Lai reiterated, “As the economic environment changes from time to time, auditors should regularly re-assess the audit risk and revise the audit strategy when appropriate to ensure audit quality.”
Audit Focus for 2023 year-end audit
Auditors are expected to improve the quality of work in upcoming year-end audits through heightened professional skepticism on key risk areas in the Audit Focus. ... Good audit quality stems from the right tone from the top and the concerted efforts they have exerted to ensure the engagement quality echoes their tone. We therefore will hold those leadership teams responsible for any poor audit quality.”
Audit Focus - Importance of effective audit planning
Effective audit planning is the key to assuring high-quality audits. Ms Janey Lai, Head of Inspection, stresses acutely, “Our 2020-22 inspection results reveal that many auditors underestimated the significance of effective audit planning. Engagements for which auditors failed to allocate sufficient time and resources to planning were more prone to significant audit deficiencies and poor audit quality. To ensure effective and quality audits, audit firms’ leadership, including Chairpersons and Managing Partners, should set the tone from the top and foster a culture that promotes timely and comprehensive audit planning.
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.
Manager (IT Audit)
Inspection Manager (IT Audit) Responsibilities Inspect audit working papers to assess compliance with professional standards, with particular focus on IT risks and technology components of the audit. ... Meet and interview firm personnel to understand the firm’s quality management system and the related impact on quality audit. ... Experience in quality assurance or cybersecurity audit is preferred.
AFRC x Cyberport: AI Applications for the Accounting & Audit Profession
AFRC x Cyberport: AI Applications for the Accounting & Audit Profession AFRC and Cyberport co-hosted “AI Applications for the Accounting & Audit Profession” on 23 March 2026, bringing together industry leaders and technology experts under the officiation of our Guest of Honour, Mr Joseph Chan, JP, Under Secretary for Financial Services and the Treasury. ... Lai emphasised that the AFRC fully supported the HKSAR Government’s innovation and smart economy agenda, and is actively promoting AI adoption to accelerate digital transformation across auditing and accounting. She called on stakeholders to collaborate as “super connectors,” using AI to enhance service quality and build a more competitive ecosystem. ... Play Video AMC AMC demonstrated how AI can support auditors in risk assessment processes, including Financial Statement Line Item (FSLI) mapping, materiality calculations, and preliminary analytical reviews, thereby enhancing the efficiency and overall quality of audit planning. By enabling auditors to raise the bar of work quality through its patented Cascade-Driven Planning methodology and customisable iWorking Papers, AMC Insight combines intuitive design with avant-garde solutions that significantly boost audit efficiency.