China Herald: Hong Kong needs independent audit regulator

Hong Kong is failing to bring its regulations in line with global practices, accounting professor Paul Gillis writes at his weblog. A well-funded independent audit regulator needs to clean up the industry. Paul Gillis uses the case of CPA Anthony Wu to prove his case.

Paul Gillis:

I offer as evidence the case of former EY senior partner Anthony Wu. Wu was found to have violated auditor independence rules because he was a member of the client’s executive committee, authorized signer on 13 client bank accounts, had significant personal dealings with client subsidiaries, loaning the client money, and having EY collect a retainer for his services as a financial advisor. The client, New China Hong Kong Group collapsed in 1999, spawning a series of claims. Eventually complaints were filed with the HKICPAs about Wu, another EY partner and EY itself. Auditor independence is fundamental to the accounting profession, so the allegations were very serious.

It took the HKICPAs two years just to decide whether to investigate the com-plaints. That was understandable, in Hong Kong, anyway. Wu is a high profile CPA in Hong Kong. He was Chairman of EY from 2000 to 2005. He was awarded the Gold Bauhinia Star (Hong Kong’s highest honor), and served as Chairman of the Hospital Board, the Chamber of Commerce and served on several high profile government and corporate boards, and the China People’s Political Consultative Committee.

The investigation dragged on for another 2 ½ years, and the case was finally heard by a HKICPAs disciplinary committee in May 2013, making it the longest running case in HKICPA history by a huge margin. HKICPAs issued the report of the investigative committee late on Christmas eve raising suspicions they were trying to bury the incident.

Curiously, while the disciplinary committee found that Wu, his partner, and EY had violated the independence rules, they did not administer any sanctions, Almost 6 months later, the HKICPAs website still does not show any sanctions.

More at the China Accounting Blog.

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