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AFRC 2022 Annual Inspection Report provides transparency about audit quality and holds firms accountable for their performance
AFRC 2022 Annual Inspection Report provides transparency about audit quality and holds firms accountable for their performance 11 July 2023 The Accounting and Financial Reporting Council ( AFRC ) today issues the 2022 Annual Inspection Report on its inspections of public interest entity ( PIE ) auditors and non-PIE auditors completed from 1 April 2022 to 31 March 2023. ... We will keep monitoring the current situation and taking further steps, particularly on firms with a tendency to accept higher-risk and more complex engagements which are disproportionate to their experiences and resources.” We urge auditors to take robust actions and firms’ leadership such as firms’ Chairmen, Managing Partners and engagement quality reviewers ( EQR ) to set the right tone in order to improve the effectiveness of quality management system and the quality of their audit work. At the same time, we also urge directors of the listed entities and their audit committees to take advantage of our comments on audit firms when assessing the competence and capabilities of their auditors. It is their primary responsibility to ensure the quality of financial reporting and audits and therefore should maintain regular communications with the auditors on the key audit risks and resolve any issues identified during the audit.
FRC Investigates Going Concern Reporting of China Evergrande
The FRC identified questions about the adequacy of reporting on going concern in China Evergrande’s 2020 Annual Accounts and 2021 Interim Accounts and PwC’s auditor’s report for the 2020 Audit through our market surveillance activities. ... Made no explicit statement in the 2020 Annual Accounts as to whether material going concern uncertainties existed before or after the effects of implementing the mitigating plans. 2020 Audit PwC expressed an unmodified audit opinion in its auditor’s report on the 2020 Annual Accounts but made no reference to going concern material uncertainties. 2021 Interim Accounts In the 2021 Interim Accounts, China Evergrande: (i). ... The FRC publicly announces the initiation of enquiries and investigations when considered necessary in the circumstances in order to protect the interests of shareholders and the investing public so as to maintain public confidence in our financial markets and independent auditor regulation.
Collection of FRC levy by Hong Kong Exchanges and Clearing Limited
Collection of FRC levy by Hong Kong Exchanges and Clearing Limited 28 June 2021 As the independent auditor regulator of Hong Kong, the Financial Reporting Council (FRC) is committed to safeguarding public interest through upholding the quality of financial reporting of listed entities in Hong Kong. ... FRC Transaction Levy); (ii) public interest entities (PIEs); and (iii) PIE auditors. With the provision of the Government’s seed capital for the FRC in August 2019, the payment of levies has been exempted for the period from 1 October 2019 to 31 December 2021.
Completed enquiry and investigations
In relation to the above accounting issue, the FRC had also adopted two investigation reports on the respective audits of the Relevant Financial Statements by two auditors on 8 November 2018 and 4 February 2020. ... Auditing irregularities As a result of the investigations, in relation to the above issues, it was found that: the auditor of the 2012 Financial Statements was in breach 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 200 ); HKSA 230 (Clarified) Audit Documentation ( HKSA 230 ); HKSA 500 (Clarified) Audit Evidence ( HKSA 500 ); HKSA 540 (Clarified) Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures ( HKSA 540 ); and HKSA 560 (Clarified) Subsequent Events . the auditor and the engagement partner of the 2013 Financial Statements were in breach of: HKSA 200; HKSA 230; HKSA 260 (Clarified) Communication with Those Charged with Governance; HKSA 450 (Clarified) Evaluation of Misstatements Identified during the Audit; HKSA 500; HKSA 510 (Clarified) Initial Audit Engagements – Opening Balances; and HKSA 540 the engagement quality control reviewer of the 2013 Financial Statements was in breach of HKSA 220 (Clarified) Quality Control for an Audit of Financial Statements to carry out an objective engagement quality control review.
AFRC starts inspecting engagements involving audit working papers located on the Mainland
Under the agreed mechanism, the SEB has assisted the AFRC in obtaining audit working papers of PIE auditors located on the Mainland ( AWP-C ) for inspection in Hong Kong. ... The arrangement not only facilitates AFRC’s inspection of engagements involving AWP-C but also sends a strong message to PIE auditors that their audit engagements are subject to the AFRC’s quality review no matter where they keep their audit working papers.
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. ... The AFRC will act promptly and effectively to ensure compliance by PIE auditors to uphold the standards of professional conduct and to maintain Hong Kong’s reputation as an international financial centre.
AFRC imposes its first ever permanent non-issuance of practising certificate order and pecuniary penalty of HK$300,000 against Chan Kam Kwan for serious CPA misconduct
Chan admitted that he had blindly signed off and issued 11 auditor’s reports of private companies, and provided false and/or misleading information to the HKICPA prior to the commencement of the Practice Review. ... Blindly signing off audit reports The AFRC found that Chan had blindly signed off and issued 11 auditor’s reports of nine private companies. ... Auditors are required to design and perform audit procedures that are appropriate in the circumstances for the purpose of obtaining sufficient appropriate audit evidence.
FRC issues its 2019-21 Annual Report
FRC issues its 2019-21 Annual Report 30 June 2021 Financial Reporting Council (FRC) today issues its 2019-21 Annual Report (the Report) for the 18 months ended 31 March 2021, the first financial year of the FRC since the commencement of the new auditor regulatory regime on 1 October 2019. ... As the independent regulator of auditors of listed entities, we have fervently focused on performing our reinvigorated mission.