Pre-seminar reading materials

For a better understanding of discussions in this session, it is

recommended that the proceedings of the following three cases are
read in advance. The full proceedings can be found at:
https://www.hkicpa.org.hk/en/Standards-and-regulation/Compliance/Disciplinary/Disciplinary-Orders

You may use Google to search ‘HKICPA Disciplinary Orders’ to locate

this webpage.

Look up the cases at the ‘Respondent’ column and locate the

proceedings (Decision) documents at the ‘Sanction’ column
Date Respondent
1. KPMG
12 August 2021 2. Yu Yuk Ping, June
3. Yu Wai Sum
13 May 2021 Kwok Chi Sun, Vincent
31 March 2021 Yu Kung Shing

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 1
 HKICPA and KS Yu – Background information
(31 March 2021)

Yu is a sole proprietor.
HKICPA performed a QA review and
selected 2 audits. As a number of
deficiencies were identified, 3 more
engagements were added. All 5
entities are privately owned SME
companies.
The quality of the audits did not
meet the Standards and the QA
Team referred the case to the
Disciplinary Committee.

1500P_-DC-Order_31Mar2021.pdf (hkicpa.org.hk) (14 pages)

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 2
 HKICPA and Vincent Kwok – Background information
(29 June 2021)

Kwok is a sole proprietor.

HKICPA performed a QA review on pre-
selected audits, including:
(1) an incorporation of building owners;
(2) a solicitor firm;
(3) a school;
(4) a licensed firm under the Securities
and Futures Ordinance;
(5) A privately owned single entity
(6) A privately owned group
The quality of the audits did not meet the
Standards and the QA Team referred the
case to the Disciplinary Committee.

https://www.hkicpa.org.hk/-/media/HKICPA-Website/New-HKICPA/Standards-and-regulation/Compliance-Dept/Press-
Release/Jun-2021/1529P_Vincent-
Kwok/1529_13May2021_Redacted.pdf?la=en&hash=6F2DAA587387F72E928CC0226D7D6E45 (12 pages)

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 3
 HKICPA and KPMG in the IPO and audit engagements
of China Forestry Holding (CFH) case
Background information
(29 April 2021)

• CFH underwent an IPO process in 2009.

• KPMG was the reporting accountant and auditor
of CFH from 2006-2009, and issued unmodified
audit reports on the 2009 audit.
• KPMG issued a disclaimer opinion in the 2010
audit, and resigned as the auditor on 5 January
2012.
• It was reported that many of the forests did not
actually exist. IPO proceeds were presumed to
have been spent on forest acquisition.
• HK FRC received a complaint on KPMG’s audit and
the case was referred to HKICPA to follow up.
• CFH was wound up by a court order in June 2015.

HKICPA announcement: https://www.hkicpa.org.hk/-/media/HKICPA-Website/New-HKICPA/Standards-and-

regulation/Compliance-Dept/Press-Release/Sep-2021/1206F_KPMG_Yu-Yuk-Ping_Yu-Wai-Sum/1206F_Decision_29-April-
2021_Redacted.pdf?la=en&hash=BB5CE66688162547C088F2C1555A0F22 (97 pages)
Company announcement : ltn20110429576.pdf (hkexnews.hk) ltn20110429576.pdf (hkexnews.hk) (14 pages)

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 4
 Auditing seminar
裝備好使用新的澳門核數準則
第三部份 第八節
Common deficiencies of audits performed in accordance with auditing
standards comparable to the new Macau Auditing Standards

Charles Fung
FCCA, FCPA, CPA (Macau)
charlescwfung@gmail.com

Disclaimer statement:
The following presentation has not been reviewed or approved by the Boards of Directors
of MSRA and CPTTM. MSRA and CPTTM will not accept any responsibility in respect of any
comments included in this presentation.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 5
 • To understand the focuses and findings of
Today’s objectives quality assurance reviews performed by audit
regulators in Hong Kong and Singapore
• To learn from the findings of QR review reports
• To learn from the findings of AML/CTF
compliance review performed by audit regulator
in Hong Kong

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 6
 Learning from
HKICPA’s QA Report 2020

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 7
 Learning from • The QA review will be performed annually and
HKICPA’s QA Report 2020 the report is usually published in March yearly.
Background • QA covers both audit practices and financial
information reporting. (Note: We only look at review of
audit practices today.)
• HKICPA’s QA reviews also cover anti-money
laundering and counter-terrorist financing
(AML/CTF) compliance.
• As HKICPA is no longer responsible for
reviewing listed engagements which have been
taken over by FRC, this 2020 report covers only
audits of non-listed entities.
• Today, let’s see some common “errors” in the
(Available at HKICPA’s homepage) accountancy profession. You are encouraged to
study the relevant subjects in details.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 8
Learning from Focuses of 2020 review
HKICPA’s QA Report 2020 Firm level inspections included:
(1) Engagement management and human resources,
Reviews of audits:
(2) Acceptance and continuance,
Firm level and
(3) File assembly,
engagement level
(4) Professional ethics, and
(5) Other quality control issues
(All the above relate to ISQC 1)

Engagement level inspections included:

(1) Audit planning and risk assessment (Risk
Assessment)
(2) Revenue and expenses (Assertions)
(3) Assets and liabilities (Assertions)
(4) Group audit (Group reporting)
(5) Audit completion and reporting (Reporting)

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 9
 Learning from
HKICPA’s Quality Assurance Report 2020

Firm Level Inspections

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 10
Learning from HKICPA’s expectations
HKICPA’s QA Report 2020 • Practices should have a system of control
Firm level inspections that emphasizes the following elements to
ensure professional, high quality audit
Engagement management
services are delivered:
and human resources
(requirements under ISQC 1) • A strong internal culture that encourages
quality audits and sound application of
professional skepticism;
• Adequate resources including staff with
sufficient time and appropriate competence
and capabilities to carry out audits; and
• Effective supervision and reviews, including
adequate two-way communication between
engagement partners and audit team
members when planning and executing
audits.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 11
 • Practices did not evaluate nor take steps to address
Learning from sufficiency of resources despite taking up an
HKICPA’s QA Report 2020 increasing number of audit engagements.
Firm level inspections • Practitioners did not adequately supervise the audit
Engagement management process of the engagements nor effectively carry
out file reviews, resulting in many engagement
and human resources deficiencies being identified.
- Findings • Practitioners and audit staff members did not have
sufficient and relevant experience nor receive
training on relevant requirements before
undertaking compliance work on regulated client
It is fair to assume that this engagements.
“sampan” arrangement issue
has been in existence since • Practices were over-reliant on subcontractors who
were not their staff or a member of their network
the history of accountancy
firm’s staff and did not exercise adequate control
began in Hong Kong. over the audit work performed by subcontractors
nor take steps to ensure that subcontractors were
competent and up-to-date on professional
standards when handling assigned audit work.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 12
Learning from HKICPA’s expectations
HKICPA’s QA Report 2020 • To meet the requirements of HKSQC 1,
Firm level inspections practices should have policies and procedures
Acceptance and in place to help them make appropriate
continuance acceptance and continuance decisions.
• Practices should only accept or continue an
engagement if they are satisfied about the
integrity of the client and that they are
competent to perform the services required
and comply with ethical standards.
• The audit team should undertake appropriate
assessments, document client acceptance or
continuance consideration, and complete
standard audit procedures during the planning
stage of the engagement.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 13
Learning from • Lack of robust assessment of matters giving rise
HKICPA’s QA Report 2020 to independence threats, competence and
resources needed, and client integrity during the
Firm level inspections client acceptance or continuance process.
Acceptance and • Client acceptance or continuance forms were
continuance undated or not approved by practitioners prior to
the commencement of engagements.
- Findings
• Practices accepted appointment as auditors
Macau SMP are reminded to before completion of client acceptance
design and use a thorough procedures, e.g. requests for professional
pre-acceptance assessment clearance and issuance of engagement letters.
form and questionnaire which • Practices did not follow up non-replied
must incorporate AML/CTF professional clearance requests nor assess the
elements. implication of not receiving professional
clearance before accepting a new client.
Be careful. If an international
• No documented consideration of the matters
firm qualified the last year’s which gave rise to the prior year’s modifications
accounts, the audit regulator of the audit opinion and the actions taken to
is likely to follow up what the address or resolve them before the next audit.
current auditor would do.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 14
Learning from HKICPA’s expectations
HKICPA’s QA Report 2020 • Completion and retention of audit engagement
Firm level inspections documentation should meet the standards
File assembly required by HKSQC 1 and HKSA 230.
• Practices are required to complete the
The most difficult part of ISA assembly of the audit files on a timely basis,
230 is “Assembly of the Final which should not normally be later than 60
Audit File” (ISA 230.14-16)
days from the date of the audit report.
• The date of final assembly should be shown
clearly on the file once assembly has been
completed.
• Audit files should be retained for at least five
years from the date of the audit report.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 15
Learning from • No policies and procedures to require audit
HKICPA’s QA Report 2020 teams to (1) complete the assembly of final
engagement files (paper and/or electronic) on
Firm level inspections a timely basis after the audit reports had been
File assembly finalized, and (2) ensure that the final version
- Findings of audit work papers was retained on file.
• Incomplete archiving of audit work papers. As
A Big 4 firm in HK was a result, some work papers and documents
alleged by the were not retained in the archived audit files.
liquidator of an ex- • No controls to ensure that archived files were
client that audit not subsequently modified.
documentation was
• No record of the completion date of file
modified after the
assembly to evidence compliance.
completion of audit and
finally agreed in • No controls over confidentiality, safe custody,
October 2009 to pay a accessibility and retrievability of audit files for
settlement amount practices sharing offices with other third
which was said to be parties or practices that had subcontracted
over US$200 million. work to others.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 16
Learning from HKICPA’s expectations
HKICPA’s QA Report 2020 • According to the Code of Ethics, there are five
Firm level inspections major threats that may compromise an
Professional ethics auditor’s independence, i.e. self-interest
threat, self-review threat, advocacy threat,
familiarity threat and intimidation threat.
• Before an audit engagement, it is crucial that
all potential threats to independence are
considered and assessed.
• If a significant independence threat is
identified, safeguards should be developed and
implemented to reduce the threat to an
acceptable level.
• If no adequate safeguard can be applied, the
practice should decline or resign from the
audit engagement.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 17
 • No documentation of the evaluation of the threats to
Learning from independence
HKICPA’s QA Report 2020
• No appropriate safeguards in place to mitigate the
Firm level inspections threats
Professional ethics • Failure to assess the significance of self-interest or
intimidation threats due to relative sizes of audit and
- Findings non-audit fees that represented a significant portion of
the practice’s total revenue.
• Clients referred by service companies contributed
significantly to the total revenue of the practice.
• No consideration was given to the potential
independence threats created by business relationships
with the service companies and safeguards required.
• Referral fees were paid to another professional
accountant for referral of audit clients, but no
safeguards were applied to address such a self-interest
threat.
• An audit team member was the key management of an
audit client. (See the next slide for an example
happened in 1988 and sanctioned in 2014.)

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 18
 A HK CPA was sanctioned by HKICPA
because he was involved in the
management of an audit client of his firm.
在 法 庭 研 訊 清 盤 過 程 中 ， 清 盤 人 在質 疑 身 為
安 永 會 計 師 事 務 所 合 伙 人 的 胡 定 旭， 在 九 十
年 代 出 任 新 中 港 集 團 董 事 ， 其 間 存在 利 益 衝
突 ， 主 審 法 官亦 提 示 會計 師 公會 要 注 意 此 事。
會 計 師 公 會 其 後 審 視 有 關 個 案 ， 決定 先 成 立
調 查 委 員 會 調 查 ， 至 2 0 0 9 年 完 成 報 告， 認 為
表 證 成 立 ， 再 交 由 紀 律 委 員 會 展 開聆 訊 。
http://www.bastillepost.com/hongkong/article/51511-
%e8%83%a1%e5%ae%9a%e6%97%ad%e5%b0%88%e6%a5%ad%e5%a
4%b1%e5%be%b7-
%e6%8f%ad%e3%80%8c%e6%96%b0%e4%b8%ad%e6%b8%af%e3%80
%8d%e7%88%86%e9%91%8a%e4%b9%8b%e6%ba%90
https://www.cfoinnovation.com/accounting-
compliance/after-five-years-hong-kong-cpa-body-
finally-sanctions-anthony-wu
The engagement partner of the audit was
also penalized.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 19
Learning from • Monitoring review reports were boilerplate
HKICPA’s QA Report 2020 (e.g. same generic findings on all engagements
Firm level inspections reviewed).
Other quality control • No follow-up work to address findings
issues noted during identified in monitoring reviews.
the review • A monitoring review was not performed
according to the timeframe required by HKSQC
1, i.e. annually for the quality control system
The last two bullet points and at least once every three years for
are “must-do’s” in a QA completed engagements.
review.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 20
 Learning from
HKICPA’s Quality Assurance Report 2020

Audit Engagement Inspections

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 21
Learning from HKICPA found that some audit firms did not
HKICPA’s QA Report 2020 • provide appropriate justification for the
Engagement rebuttal (counterargument) 反 駁 of fraud risk
inspections in revenue recognition
Audit planning and risk • identify audit risks at assertion and financial
assessment statement levels (This has been covered in
- Findings Session 6.)
There are 5 higher fraud risk areas • document and evaluate design and
that the auditor must consider: implementation of internal controls over major
1. Revenue recognition business processes as required by HKSA 315
2. Accounting estimates
(This has been covered in Session 6.)
3. Significant contracts
4. Related-party transactions (Note: The auditor cannot perform just the operating
5. Period end financial reporting effectiveness tests of controls without performing the
control (journals) design and implementation effective tests of controls. In a
(1) is the largest FSLI and (2)-(5) continuing audit, a walk-through test of significant system
relate to management override. is necessary to confirm the internal control has remained
For more details, read ISA 240. unchanged before performing tests of effectiveness.)

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 22
 HKICPA found that some audit firms did not
Learning from
• check delivery documents to determine the timing of
HKICPA’s QA Report 2020 transfer of risks and rewards of goods purchased and
sold (This audit objective should have been covered by
Engagement tests of control, and cutoff tests.)
inspections
• carry out adequate audit procedures on contract
Revenue and expenses revenue and costs. (F/S assertions!)
- Findings • document sufficient details and extent of the audit
work done, such as the items tested, testing coverage,
and types of supporting documents inspected. (i.e.
nature, timing and extent)
Note:
• determine sample sizes for substantive tests after
Sampling for tests of taking into account the population values, materiality
control can apply a and audit risks identified rather than applying a
standard sample size across all tests. (This sounds like a
standard sample size compliance test.)
across all tests. Sample
size for substantive tests • perform a test of control or a substantive analytical
review if such work was planned to be carried out
depends on the expected according to the audit plan and update the plan for any
level of audit comfort to subsequent changes. (Generally, audit regulators
be obtained. expect a substantive AR to be performed on revenue.)

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 23
 HKICPA found that some audit firms did not
Learning from • perform audit work to assess the recoverability
HKICPA’s QA Report 2020 of material receivable balances that remain
Engagement unsettled before the audit report date
inspections • perform work to assess reliability of audit
Assets and liabilities confirmations received by either fax or
scanned copies
- Findings
• perform sufficient alternative audit procedures
The 4 suggested standard
on trade receivable and payable balances
follow-up procedures for no- without returned confirmations (i.e. the 4
replies must be performed, not standard follow-up procedures.)
just anyone of these, and • assess reliability of internally generated
documented: documents before using it as audit evidence
• Check existence
• Check break-down of balance • perform sufficient audit procedures (e.g. audit
• Test vouch supporting confirmations concerning banks, debtors and
• Check subsequent settlement creditors, and sales and purchase cut-off tests)
to obtain adequate evidence regarding the
opening balances in initial audit engagements.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 24
Learning from HKICPA found that some audit firms did not:
HKICPA’s QA Report 2020
• assess the consistency and appropriateness of
Engagement the accounting policies applied by significant
inspections components; and adequately participate in and
Group audit assess the adequacy of the component
- Findings auditors’ work
• document details of the nature, timing and
Note: extent of work done in the group audit to
1. Consolidated accounts and
group audits are new support the sufficiency and appropriateness of
requirements under the audit evidence obtained to address significant
new MFRS and MAS. Group audit risks
audit also applies the single
economic entity concept.
2. Professional skepticism
must be exercised when
auditing accounting
estimates.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 25
Learning from HKICPA found that some audit firms did not:
HKICPA’s QA Report 2020 • assess the financial capabilities of the
Engagement shareholders relied on to provide financial
inspections support to the client (i.e. professional
Audit completion and skepticism)
reporting • assess the pervasiveness of the effect of a
- Findings scope limitation or a departure from HKFRSs
on financial statements to support the type of
Generally, scope limitation modified opinion (i.e. a qualified, adverse or
is serious enough for a disclaimer of opinion), set out appropriate
disclaimer whereas a details of the basis for the modified opinion in
departure from an the audit report and where applicable, further
accounting standard may modify the audit opinion to take account of the
lead an adverse opinion. matters which gave rise to the prior year’s
modified opinion that remain unresolved

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 26
Learning from • Failure to adequately challenge management’s
assumptions in relation to cash flow forecasts
HKICPA’s QA Report 2020 (professional skepticism)
Engagement inspections • Professional skepticism was not sufficiently
Auditing of Significant applied in assessing the reasonableness of key
inputs and assumptions into critical valuation
Accounting Estimates and calculations, such as
Judgements  Intangible assets
 Hotel properties
- Findings  Unlisted investments
 Share options
All findings relate, to some • Failure to perform work to determine whether
extent, to professional the comparable transactions used by the
skepticism which is covered in valuer to determine the asset valuation were
reasonable and appropriate
Session 7.
• Failure to identify inconsistencies in respect of
the basis of valuation set out in the valuation
report and the notes to the financial
statements

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 27
Learning from • Lack of professional skepticism to assess the
HKICPA’s QA Report 2020 reasonableness of the inventory provision
policy or the appropriateness of the basis of
Engagement inspections production overheads absorption in work-
Auditing of Significant in-progress and finished goods
Accounting Estimates and • Insufficient challenge of whether product
Judgements development costs met the criteria for
- Findings recognition as an intangible asset i.e.
identifiability, control (i.e. power to obtain
Documentation of benefits from the asset) and existence of
exercising professional future economic benefits
skepticism is what audit
regulators will look for. See • Insufficient evidence obtained for
information in Session 7. recognition of a deferred tax asset. HKAS 12
Remember that it is audit requires that deferred tax assets should be
regulator’s attitude that “no
only recognized to the extent of future
document, work not been
done.”
taxable profits that these assets can be
utilized against

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 28
Learning from HKICPA’s QA Report 2020 highlights the key features
HKICPA’s QA Report 2020 of HKSA 540 (Revised):
• a separate assessment of inherent risk and
HKSA 540 (Revised) control risk for accounting estimates
Auditing Accounting
• a requirement to design and perform further
Estimates and Related audit procedures (i.e. substantive tests) in a
Disclosures, effective for manner that is not biased towards obtaining
audits of financial audit evidence that may be corroborative or
statements for periods towards excluding audit evidence that may be
beginning on or after 15 contradictory
December 2019 • a requirement to “stand back” and evaluate the
Key features audit evidence obtained regarding the
accounting estimates, including both
corroborative and contradictory audit evidence
ISA 540 (Revised) has no effect to
• use of stronger language, such as “challenge”,
MSA yet but it is the best practice “question” and “reconsider”, to reinforce the
to audit estimates which should importance of exercising professional skepticism
be learned and considered. (Note: A cultural difference between East and
West)

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 29
 HKICPA’s expectations
HKSA 540 (Revised) requires documentation to
Learning from demonstrate how auditors have exercised professional
HKICPA’s QA Report 2020 skepticism, such as:

HKSA 540 (Revised) • the key elements of the auditor’s understanding of

the entity and its environment, including internal
Auditing Accounting control relating to accounting estimates
Estimates and Related
• the linkage of further audit procedures with the
Disclosures, effective for assessed risk of material misstatement at the
audits of financial assertion level (see also HKSA (revised) 315.28.b)
statements for periods • the response to situations where management has
beginning on or after 15 not taken appropriate steps to understand and
December 2019 address estimation uncertainty
Documentation of • indicators of possible management bias, if any, and
professional skepticism the auditor’s evaluation of the implications for the
audit; and

ISA 540 (Revised) has no effect to • significant judgments made in the determination of
MSA yet but it is the best practice whether the accounting estimates and related
to audit estimates which should disclosures are reasonable, or are misstated, in the
be learned and considered.
context of the applicable financial reporting
framework.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 30
 Learning from
HKICPA’s Quality Assurance Report 2020

Anti-Money Laundering and Counter-Terrorist Financing

(“AML / CTF”) Compliance Monitoring Reviews (“ACMRs”)

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 31
Learning from • HKICPA, being the AML / CTF regulator of
HKICPA’s QA Report 2020 the accounting profession, will need to be
able to demonstrate that it is properly
Anti-Money Laundering
discharging its duties in order to meet
and Counter-Terrorist
regulatory expectations.
Financing (“AML / CTF”)
Compliance Monitoring • HKICPA took further steps to enhance our
Reviews (“ACMRs”) risk-based supervisory programme of
AML/CTF compliance to follow up on the
Financial Action Task Force’s
It is believed that CPC will recommendations made in its 2019 mutual
undergo AML/CTF evaluation report on Hong Kong.
compliance review in a • These included issuing an alert, an exposure
similar approach. draft, a questionnaire, and undertaking
various engagement and educational
activities.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 32
Learning from The five weaknesses in practices’
HKICPA’s QA Report 2020 AML Guidelines compliance
Anti-Money Laundering
and Counter-Terrorist
Financing (“AML / CTF”)
Compliance Monitoring
Reviews (“ACMRs”)

It is believed that CPC will

undergo AML/CTF
compliance review in a
similar approach. Today, we cover only Number 4. Refer to HKICPA’s
QA Report 2020 for information about the other 4
weaknesses which may give you some ideas to
improve your AML/CFT policies and practices.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 33
Learning from Failure to comply with all CDD requirements
HKICPA’s QA Report 2020
A standard level of CDD measures (Note: KYC
Anti-Money Laundering procedures) on a client includes:
and Counter-Terrorist
Financing (“AML / CTF”) • Identification of the client, its beneficial owner(s)
Compliance Monitoring (“BO”) and the person(s) purporting to act on
behalf of the client (“PPTA”)
Reviews (“ACMRs”)
• Verification of their identities and PPTA’s
authority to act
1. It is highly recommended that
the Client Due Diligence (CDD) • Obtaining information on the purpose and
procedures are incorporated intended nature of the business relationship
into the pre-acceptance
/engagement continuing risk
assessment procedures.
2. Remember to document the
exercise of professional
skepticism.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 34
Learning from
HKICPA’s QA Report 2020 • Assess ML / TF risk of each client
• Take into account the client type,
AML / CTF Compliance
geographical location, services offered by
Monitoring Reviews
the practice, and mode of delivery of the
- Client risk assessment services in the assessment
• Draw a conclusion on ML / TF risk so as to
determine the extent of CDD (i.e. standard,
enhanced or simplified) and frequency of
1. It is highly recommended that ongoing monitoring
the Client Due Diligence (CDD)
procedures are incorporated
into the pre-acceptance
/engagement continuing risk
assessment procedures.
2. Remember to document the
exercise of professional
skepticism.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 35
Learning from • At minimum, regard the person who is
HKICPA’s QA Report 2020 authorized to act on behalf of a client to
AML / CTF Compliance establish a business relationship with the
Monitoring Reviews practice (i.e. the person who has signed or
- Person(s) purporting to will sign an engagement letter on behalf of
act on behalf of the client the client) as the PPTA, verify the PPTA’s
(“PPTA”) identity, as well as his / her authority to act,
in all types of CDD, including simplified CDD
Remember to document the
exercise of professional
skepticism. Ask open ended
questions and follow up the
answers.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 36
Learning from • Perform name checks to identify whether a
HKICPA’s QA Report 2020 client and / or its BO(s) are PEP
AML / CTF Compliance • Assess ML / TF risk of domestic PEP
Monitoring Reviews • For foreign PEP and high risk domestic PEP,
- Politically exposed person perform enhanced CDD procedures which
(“PEP”) should include:
 Obtaining senior management approval

before commencing or continuing the

Remember to document the client relationship;
exercise of professional  Taking reasonable measures to establish
skepticism. Ask open ended
the sources of wealth and funds of the
questions and follow up the
answers. PEP;
 Assessing specific risk factors in AML

Guideline paragraph 620.12.13; and

 Reviewing CDD information at least

annually.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 37
Learning from • Apply equally effective client identification
HKICPA’s QA Report 2020 procedures and ongoing monitoring
standards as for those where the client is
AML / CTF Compliance
available for interview
Monitoring Review
• Perform at least one of the following
- Client not physically
measures:
present for identification
 Further verify the client’s identity by
purpose
obtaining additional documents, data or
information from a reliable and
independent source, that are not
previously used to verify the client’s
identity;
 Take supplementary measures to verify

the information relating to the client that

has been obtained by the practice (e.g.
use of a suitable certifier).

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 38
 Summary of 3 recent real Hong Kong cases about
2 SMP Firms (sole proprietor) and A Big 4 Firm

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 39
 HKICPA and KS Yu – Background information
(31 March 2021)

Yu is a sole proprietor.
HKICPA performed a QA review and
selected 2 audits. As a number of
deficiencies were identified, 3 more
engagements were added. All 5
entities are privately owned SME
companies.
The quality of the audits did not
meet the Standards and the QA
Team referred the case to the
Disciplinary Committee.

1500P_-DC-Order_31Mar2021.pdf (hkicpa.org.hk) (14 pages)

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 40
 HKICPA and KS Yu – Background information
31 March 2021

The Disciplinary Committee’s judgement Findings

Failure or neglect to observe, maintain or otherwise apply 1) Created ex post facto 事後補造 documents for the
the fundamental principle of integrity in sections 100.5(a), purpose of the QA Review: (1) Pre-acceptance/
110.1 and 110.2 of the Code of Ethics for Professional continuance forms; (2) Audit programs; and (3) Updating
Accountants (Code of Ethics), the fundamental principle of the Quality Control Manual
professional competence and due care in sections 100.5(c) 2) Failed to obtain sufficient appropriate audit evidences on
and 130.1 of the Code of Ethics and Hong Kong Standard on • Legal compliance by the client
Quality Control 1 Quality Control for Firms that Perform • Inventory
Audits and Reviews of Financial Statements, and Other • Receivables
Assurance and Related Services Engagements, and being • Commission income
guilty of professional misconduct. • Assets impairment
3) Failed to identify RMM and perform procedures on fraud
The first practice review conducted on the practice identified
risks
significant deficiencies in its system of quality control and in
4) Failed to determine materiality, performance materiality
a number of its audit engagements. In addition, the
and a clearly trivial 瑣碎 amount
respondent was found to have provided untrue answers in
5) Failed to design and perform the mandatory analytical
the self-assessment questionnaire, made false
procedures
representations to the practice reviewer and retrospectively
6) Failed to perform subsequent event review procedures,
created documents in an attempt to support his false
7) Failed to assess the appropriateness of management’s
representations.
use of the going concern assumption,
The Committee ordered the cancellation of his practising 8) Failed to perform tests on sales and purchases cut-offs
certificate, with no issuance of a practising certificate to him 9) Inappropriate qualified opinion on inability to attend
for 24 months. In addition, Yu was ordered to pay costs of inventory-taking but no evidence to justify the scope
the disciplinary proceedings of HK$55,331. limitation
10)Failed to justify the basis for the sampling size on the test
of sales (note: 11 samples were used)

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 41
 HKICPA and Vincent Kwok – Background information
(29 June 2021)

Kwok is a sole proprietor.

HKICPA performed a QA review on pre-
selected audits, including:
(1) an incorporation of building owners;
(2) a solicitor firm;
(3) a school;
(4) a licensed firm under the Securities
and Futures Ordinance;
(5) A privately owned single entity
(6) A privately owned group
The quality of the audits did not meet the
Standards and the QA Team referred the
case to the Disciplinary Committee.

https://www.hkicpa.org.hk/-/media/HKICPA-Website/New-HKICPA/Standards-and-regulation/Compliance-Dept/Press-
Release/Jun-2021/1529P_Vincent-
Kwok/1529_13May2021_Redacted.pdf?la=en&hash=6F2DAA587387F72E928CC0226D7D6E45 (12 pages)

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 42
 HKICPA and Vincent Kwok
29 June 2021

The Disciplinary Committee’s judgement Findings

Violations in: 1) No evidence to show that the audit team had obtained
1) the fundamental principle of integrity in sections adequate understanding of the business, operation and
100.5(a), 110.1 and 110.2 of the Code of Ethics (Note: internal control, and the audit work performed was not
Audit working papers were modified just before the specific to the audit clients’ industries.
Institute’s review.); 2) Did not make inquiries of management regarding fraud
2) the fundamental principle of professional competence risk assessment in the audits of school and the
and due care in sections 100.5(c) and 130.1 of the Code incorporated owners of building
of Ethics 3) Did not evaluate whether the clients comply with law and
3) HKSQC1 for Firms that Perform Audits and Reviews of regulations
Financial Statements, and Other Assurance and Related 4) Did not design and perform appropriate audit procedures
Services Engagements and obtain sufficient appropriate audit evidence (risk
response – probably a firm-wide standard audit program
The Committee further found that Kwok’s breach of integrity
Is used)
and the multiple and repeated deficiencies identified in the
5) Did not maintain control over external confirmation
Practice’s quality control system and audit engagements
requests
demonstrated Kwok’s blatant disregard of professional
6) Did not enquire about identity and nature of related
standards, which amounted to professional misconduct.
party transactions and the relevant internal controls
The Committee further ordered the cancellation of his 7) Did not set out management’s responsibility pertaining to
practising certificate, with no issuance of a practising the preparation of financial statements
certificate to him for 6 months, with effect from 24 June 8) Did not request representation from management that
2021. In addition, Kwok was ordered to pay a penalty of the financial statement were prepared in accordance with
HK$100,000 and costs of the disciplinary proceedings of applicable laws and regulations
HK$69,464. 9) Did not perform procedures as required by specific
industries.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 43
 HKICPA and KPMG in the IPO and audit engagements
of China Forestry Holding (CFH) case
Background information
(29 April 2021)

• CFH underwent an IPO process in 2009.

• KPMG was the reporting accountant and auditor
of CFH from 2006-2009, and issued unmodified
audit reports on the 2009 audit.
• KPMG issued a disclaimer opinion in the 2010
audit, and resigned as the auditor on 5 January
2012.
• It was reported that many of the forests did not
actually exist. IPO proceeds were presumed to
have been spent on forest acquisition.
• HK FRC received a complaint on KPMG’s audit and
the case was referred to HKICPA to follow up.
• CFH was wound up by a court order in June 2015.

HKICPA announcement: https://www.hkicpa.org.hk/-/media/HKICPA-Website/New-HKICPA/Standards-and-

regulation/Compliance-Dept/Press-Release/Sep-2021/1206F_KPMG_Yu-Yuk-Ping_Yu-Wai-Sum/1206F_Decision_29-April-
2021_Redacted.pdf?la=en&hash=BB5CE66688162547C088F2C1555A0F22 (97 pages)
Company announcement : ltn20110429576.pdf (hkexnews.hk) ltn20110429576.pdf (hkexnews.hk) (14 pages)

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 44
 HKICPA and KPMG in the IPO and audit engagements of China
Forestry Holding (CFH) case
29 June 2021

The Disciplinary Committee’s judgement Findings

a) The 1st and 2nd Respondents failed or neglected to 1. Professional skepticism and sufficient appropriate
observe, maintain or otherwise apply the following evidence are the primary focuses of HKICPA
professional standards in the IPO Engagement: 2. Validity of the logging 砍伐原木 permits (False
 HKSA 200 Audit Objective; documents)
 HKSA 230 Audit Documentation; 3. Existence of customers (confirmations returned from the
 HKSA 240 Responsibilities to Consider Fraud; same post-office at the same time with same addresses
 HKSA 500 Audit Evidence; for company search.
 HKSA 505 External Confirmations; 4. Failure of not following up company search results
 HKSA 520 Analytical Procedures; and 5. Completeness of sales (100% vouching does not give
 HKSA 530 Audit Sampling. audit comfort on completeness-understatement)
b) The 1st and 3rd Respondents failed or neglected to 6. Completeness of logging expenses which were paid on
observe, maintain or otherwise apply the following cash basis (Substantive tests do not give audit comfort
professional standards in the 2009 Audit: on completeness-understatement)
 HKSA 500 Audit Evidence; 7. Existence and completeness of plantation assets
 HKSA 505 External Confirmations; and (Valuation reports cannot confirm ownership)
 HKSA 530 Audit Sampling 8. Failure of documenting the control over the payment
cycle (Walk-through tests alone are not documentation of
The Committee ordered the 1st , 2nd and 3rd Respondents internal controls)
to pay penalties of HK$500,000, HK$300,000 and 9. Authenticity (真實性 ) of a bank confirmation from a PRC
HK$200,000 respectively, and to pay costs of the Institute bank (Confirmations were not returned directly from the
and the Financial Reporting Council (“FRC”) totalling bank)
HK$5,000,000. 10. Failure of auditing the relationship the Group with a
significant business partner and its existence

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 45
 Let’s see the summary of
Singapore Corporate Regulatory Authority’s
Findings for 2018, 2019 and 2020

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 46
 Extracted from Singapore Accounting and Corporate Regulatory
Authority’s 2020 Report on Practice Monitoring Program

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 47
 Extracted from Singapore Accounting and Corporate Regulatory
Authority’s 2020 Report on Practice Monitoring Program

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 48
 Summary of
Singapore Corporate Regulatory Authority’s
Findings for 2018, 2019 and 2020

Listed companies Non- listed companies

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 49
 Audit deficiencies were detected in Singapore during
2018-2020 from the following key areas:
Recap of Singapore • Accounting estimates, including fair value
experience measurements
• Group audits
• Revenue recognition
• Risk assessment and audit evidence
• Inventory procedures
• Audit report
• Going concern
• Use of specialist

Hong Kong and Singapore have fully adopted ISA since around 1995 and both have a
relatively longer period (since post 2nd World War era?) of statutory audit
requirements in the region. Based on their QA Reports, it is fair to assume that
experienced auditors will continuously make some fundamental mistakes in
performing audits in accordance with ISA.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 50
 We are coming to the end

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 51
 Chance favours only the prepared mind!
機會是留給有準備的人

I conducted a seminar about corporate

governance in Macau some years ago. During
the time break, I heard the following statement
f r o m a C PA w h i c h h a s m a d e m e v e r y
uncomfortable up to today:

“公 司 管 理 層 沒 有 不 滿 , 政 府 沒 有 表 態 , 會 計 界 應 該 保 持
現 狀 , 不 要 發 表 意 見 , 以 免 使 自 己 的 工 作 增 加 困 難 。”

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 52
 • Overseas audit regulators’ QA Reports
contain information and materials which are
useful to the learning of ISAs, hence the
new MAS
Things to take home • Macau auditors must strengthen, and keep
up, their basic auditing knowledge, such as:
 Risk assessment

 Internal Controls

 Professional skepticism

 Documentation

• ISQC 1 is difficult but essential in the

context of audit risk management
• There are difficulties in applying the new
MAS and you may have to start your
Mission Impossible ASAP, not later than 1
January 2022.

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 53
 Open discussion forum

Sep-Oct 2021 Are you ready for the new MAS – Part 3.8 54