The Hong Kong Institute of CPAs doled out some fines on Nov. 13 to Deloitte Touche Tohmatsu and a Deloitte CPA for making some auditing faux pas.
The firm and accountant Lee Po Chi each have to pony up $50,000 HKD ($6,384 USD) “for their failure or neglect to observe, maintain or otherwise apply professional standards issued by the Institute.”
Deloitte audited the consolidated financial statements of Culturecom Holdings Limited, a Hong Kong listed company, and its subsidiaries (collectively “Group”) for each of the years ended 31 March 2013 to 2016 and expressed unmodified auditor’s opinions. Lee was the engagement partner in those audits.
The financial statements for 2014 and 2015 included an impairment loss of HK$29.6 million on the Group’s investment in a listed company. This loss was inappropriately recorded, as the market value of the investee’s shares was greater than their carrying amount in the two years. As a result, the Group’s net assets were understated in those financial statements. In the Group’s 2016 audited financial statements, the impairment loss was retrospectively reversed.
According to CFO Innovation, the listed company was China Bio Cassava, now known as Cloud Investment Holdings Ltd.
The HKICPA said both Deloitte and Lee ran afoul of Hong Kong Standard on Auditing (HKSA) 500, Audit Evidence, in the audits of the 2014 and 2015 financial statements.
In addition to each paying the $50,000 administrative penalty, Deloitte and Lee must jointly pay costs of $10,000 HKD ($1,275 USD).