China Herald: Accountancy

Friday, July 25, 2014

The sad state of Hong Kong accounting - Paul Gillis

After long delays the Hong Kong accounting regulator at last announced penalties for accounting firm Ernst & Young and its former senior partner Anthony Wu. Too little, too late, writes Beida professor Paul Gillis at his weblog. Hong Kong needs an independent regulator.

Paul Gillis:

The case against Wu was a slam dunk. He signed checks for an EY audit client. His defense was laughable – he only did it when other signatories were unavail-able and had approved the payments. He also served as an advisor to the com-pany, and was involved in loans to the company. Wu’s only credible defense was that, by taking 20 years to prosecute him, his defense was undermined. But he and EY had been told to preserve documents and had not done so. EY was found guilty of not supervising Wu.
EY’s management committee had been informed of what Wu was doing and did not stop him. Neither did the audit partner, Catherine Yen, who was found guilty of violating independence rules as well for signing despite Wu’s activities impairing EY’s independence.
Independence is at the heart of the CPA profession. Wu, EY and Yen have vio-lated the most sacred principle for auditors.
The disciplinary committee found the breaches were persistent, flagrant and inexcusable...
The case illustrates the sad state of accounting regulation in Hong Kong. Taking 20 years to resolve the issue is unfair to all involved. Issuing fines that are insig-nificant to the parties is not going to serve as a deterrent to similar behavior in the future. Wu should have been banned for life. Yen and EY should have faced much more biting penalties. EY collected a fee of $100,000 per month for many years for Wu’s illegal services, as well as audit fees. They are not even being required to pay those back.
Hong Kong is in the early stages of reforming its governance of accounting. This case is the only reason they need to take it away from the HKICPAs and create a serious independent audit regulator.

More at the ChinaAccountingBlog.

Paul Gillis is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you interested in previous articles by Paul Gillis. Have a look at our regularly updated list.

Monday, June 30, 2014

Why the big four should not oppose Hong Kong democracy - Paul Gillis

+Paul Gillis

Social media exploded as the Financial Times reported this weekend the big four accounting firms publicly opposed democracy initiatives in Hong Kong. Accounting expert Paul Gillis summarizes the mayhem on his weblog and explains why "the arrogance of the firms is stunning".

Paul Gillis:

It is assumed by many that the firms were pressured by their clients (the largest of which are Chinese state-owned enterprises) to place this ad. Certainly there are few instances in the past where the firms have spoken out in one voice for social reforms. The arrogance of the firms is stunning. Did they really think their voice would alter the debate? Do they really think people respect their opinions that much? Did they not see that all they were doing is setting themselves up for ridicule while diminishing their brand worldwide?

The most important question is whether they have impaired their independence on their clients such that they can no longer serve as auditors. Hong Kong follows International Auditing Standards (IAS). ...

Based on newspaper reports and tweets many third parties have concluded that the firm’s integrity, objectivity, and professional skepticism have been compromised. Are those reasonable and informed third party conclusions? Certainly there is enough smoke here that the HKICPAs ought to send in a team of firemen to see if there is a fire. But that seems unlikely to happen.

Independence rules aside, the firms would be wise to stay out of politics. Accounting firms have a diverse client base, and a diverse group of partners and staff. Taking a controversial stand on a political issue is bound to alienate many clients, partners, and staff. Is it really worth destroying trust to gain a few political points with certain elite clients?

The full report at the ChinaAccountingBlog.

Paul Gillis is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´ request form.

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