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Completed investigation
The FRC found that the auditor, the engagement partner and the engagement quality control reviewer failed or neglected to observe, maintain or otherwise apply certain professional standards in the relevant audit in relation to (a) the purchase price allocation of a business combination; and (b) the measurement of the acquisitiondate fair value of the consideration shares issued for the business combination. The investigation revealed that the auditor and the engagement partner failed to properly perform the relevant audit, in relation to the above matters, in accordance with the relevant provisions of Hong Kong Standard on Auditing (HKSA) 200 (Clarified) Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Hong Kong Standards on Auditing, HKSA 500 (Clarified) Audit Evidence and HKSA 540 (Clarified) Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures . It was also found that the engagement quality control reviewer of the relevant audit failed to fully comply with the relevant provisions of HKSA 220 (Clarified) Quality Control for an Audit of Financial Statements .
FRC issues Overview of the Market for Listed Entity Audits in Hong Kong
Apart from our statutory functions, the FRC conducts research and studies that are conducive to enhancing audit quality, audit independence and the healthy development of the market for listed entity audits in Hong Kong.” ... Ms Florence Wong, Deputy CEO and Head of Oversight, Policy and Governance said, “Audit quality is one of the key elements of quality financial reporting. The report highlights factors that may indicate risks to audit quality that audit firms, listed entities and audit committees should care about.
Press statement on cross-border collaboration on audit regulation among PRC’s Ministry of Finance, China Securities Regulatory Commission and the Public Company Accounting Oversight Board
Press statement on cross-border collaboration on audit regulation among PRC’s Ministry of Finance, China Securities Regulatory Commission and the Public Company Accounting Oversight Board 26 August 2022 Financial Reporting Council (FRC) notes that the PRC’s Ministry of Finance (MoF), China Securities Regulatory Commission (CSRC) and the Public Company Accounting Oversight Board (PCAOB) have reached an agreement on cross-border collaboration on audit regulation (“cross-border collaboration”). As the independent auditor regulator of Hong Kong acting in the public interest, FRC has a statutory duty to improve the quality of audit reports of Hong Kong audit firms so as to protect investor interest and help promote public trust in the audit process and investor confidence in Hong Kong and other global capital markets.
AFRC calls on auditors and audit committees to strengthen independence safeguards around procurement and purchases from audit clients
Auditor independence is the cornerstone for maintaining objectivity and integrity in audits. Any breaches to independence requirements can undermine an auditor’s professionalism and jeopardise audit quality. ... However, improper management of these activities may pose significant threats to auditor independence, potentially compromising audit quality. When audit firms' policies do not directly address identified independence threats, exercising professional judgement is crucial. Firms should adopt a conservative approach beyond basic independence requirements to maintain trust and enhance audit quality.” As an overarching principle, audit firms and their personnel must remain alert to any transactions with their audit clients and the potential impact on their independence.
AFRC reminds auditors of the importance of audit documentation integrity
It aims to remind auditors of the key standards relating to audit documentation integrity and to emphasise the importance of improving audit quality through the development of an effective system of audit documentation policies, procedures, and controls. ... High-quality audit documentation plays a vital dual role in enhancing audit quality and reducing the risk of non-compliance with standards. ... The AFRC urges audit firms to establish an effective system of policies, procedures, and controls to safeguard audit documentation integrity, prevent misconduct and promote a quality-focused culture.
Regulatory Collaboration Enhances Effectiveness in Audit Regulation
In an announcement published today, the MoF has found that between 2022 and 2023, in respect of the annual audits of 5 Mainland enterprises listed in Hong Kong, Elite Partners CPA Limited, a Hong Kong registered PIE auditor, failed to comply with various reporting obligations under the Mainland’s “Interim Provisions on Accounting Firms’ Provision of Auditing Services for the Overseas Listing of Enterprises in Mainland China” ( Interim Provisions ) which have, since July 2015, governed the provision of audit services in the Mainland by non-Mainland (including Hong Kong) audit firms and their audit quality. ... This incident highlights the success of cross-border collaboration between the AFRC and the MoF and further attests to the importance that both parties place on regulatory cooperation to maintain high standards of audit quality, thereby enhancing public confidence in PIE auditors. The AFRC will adopt a coordinated approach with the MoF in strengthening the supervision and management of cross-border audit services and Hong Kong audit firms’ compliance with the relevant regulatory requirements including reporting obligations, cooperation with Mainland audit firms and the safekeeping of audit working papers under the Interim Provisions and other legislation, as announced by the MoF today.
Completed investigation on the audit of the consolidated financial statements of a listed entity for the year ended 31 March 2017
Completed investigation on the audit of the consolidated financial statements of a listed entity for the year ended 31 March 2017 9 July 2020 On 29 June 2020, the FRC adopted the investigation report on the audit of the consolidated financial statements of a listed entity for the year ended 31 March 2017. The FRC found that the auditor, the engagement partner and the engagement quality control reviewer failed or neglected to observe, maintain or otherwise apply certain professional standards in the relevant audit in relation to the corresponding figures on inventories and revenue. ... It was also found that the engagement quality control reviewer of the relevant audit failed to fully comply with the relevant provisions of HKSA 220 Quality Control for an Audit of Financial Statements .
Overview of the non-public interest entity audit market
Managing such an enormous portfolio of non-PIE audit clients presents tremendous challenges to audit quality management. Without deploying sufficient time and resources, audit quality will be compromised. ... This is to promote orderly market operations and safeguard audit quality. The AFRC emphasises that partners/directors must prioritise high-quality audits, ensuring they dedicate sufficient time and resources to provide audit services.