Tong Pon Wah v. Hong Kong Society of Accountants
Read the full judgment text of CACV 260/1997 on BabelCite. This Court of Appeal judgment was delivered on 3 June 1998 before Godfrey, Liu and Leong, JJ.A..
Disciplinary proceedings – professional accountants – reliance on specialist valuation – Statement of Auditing Standard 3.101 paragraph 7 – Auditing Guideline 3.282 paragraphs 15-17 – duty to give reasons – natural justice – professional judgment of disciplinary tribunal – appellate review. The appellant, a partner in Deloitte Touche Tohmatsu responsible for the audit of the financial statements of Kong Tai International Holdings Company Limited for the year ended 31 March 1995, was found by the Disciplinary Committee of the Hong Kong Society of Accountants to have neglected to observe, maintain or otherwise apply a professional standard, in breach of section 34(1)(a)(vi) of the Professional Accountants Ordinance, Cap. 50. The complaint concerned his failure to comply with paragraph 7 of SAS 3.101 in the audit of the valuation of two properties (the Sheen Profit Centre and the Pegasus Property) held for redevelopment, valued at HK$441,000,000 in the audited accounts but with a true valuation of HK$215,000,000. The valuations, prepared by Vigers Hong Kong Limited, were on a gross development value basis without deduction of redevelopment costs, which the company's auditors and management did not detect. The Disciplinary Committee, constituted under section 33(3)(a), ordered pursuant to section 35(1)(b) that the appellant be reprimanded. On appeal under section 41 of the Ordinance, the appellant contended (i) that the Disciplinary Committee was obliged to give reasons for its decision, the absence of which materially prejudiced his right of appeal, and (ii) that, since the only expert evidence supported his position, no reasonable tribunal could have found the complaint proved. Held, dismissing the appeal: (1) The Disciplinary Committee was under no statutory or common law duty to give reasons, and the absence of reasons did not, on the facts, materially prejudice the appellant's prosecution of his appeal; there was no evidence all one way, the issue was straightforward, and the appellant was fully aware of the charge and had every opportunity to meet it. (2) An appellate court will not second-guess the professional judgment of a disciplinary committee of a professional body unless the committee plainly misread the evidence or reached a conclusion contrary to it (per Libman v General Medical Council); the Committee was entitled to prefer the Society's evidence over that of the appellant's expert witnesses (Mr. Brown, a chartered surveyor, and Mr. Morrison, a chartered accountant), and its conclusion that paragraph 7 of SAS 3.101 and the requirements of Auditing Guideline 3.282 (paragraphs 15-17) had not been complied with was reasonably sustainable on the evidence. The case turns on the proper evaluation of specialist evidence: given the materiality of the amounts (shareholders' equity increased by 43%), the change of basis from prior years, the absence of valuation certificates, and the higher relative values of the two properties, the auditor was required to make a detailed examination of the Vigers report and could not simply accept it at face value. Appeal dismissed.
Legal issues: Obligation of a disciplinary committee to give reasons for its decision · Whether the Disciplinary Committee's finding of breach of professional standard was reasonably sustainable
Outcome: Appeal dismissed; the Disciplinary Committee's order reprimanding the appellant is upheld.
Cited by 24 cases · Cites 1 case
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1997, No. 260 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL
---------------------- Coram : Hon. Godfrey, Liu and Leong, JJ.A. in court Dates of hearing : 2 and 3 June 1998 Date of judgment : 3 June 1998 ---------------------- J U D G M E N T ---------------------- Godfrey, J.A. : Introduction 1. This is an appeal from an order made on 28 November 1997 by the Disciplinary Committee ("the Disciplinary Committee") of the Hong Kong Society of Accountants ("the Society") constituted under section 33(3)(a) of the Professional Accountants Ordinance, Cap. 50 ("the Ordinance") whereby the Disciplinary Committee ordered, pursuant to section 35(1)(b) of the Ordinance, that a professional accountant, Mr. Tong Pon Wah ("Mr. Tong"), be reprimanded. This order was made at the conclusion of an inquiry by the Disciplinary Committee into certain complaints made against Mr. Tong, laid under section 34(1) of the Ordinance; the complaint found proved was as follows :
2. Mr. Tong now appeals to this court, pursuant to the provisions in that behalf contained in section 41 of the Ordinance, asking us to reverse the Disciplinary Committee's order. The background 3. The complaint against Mr. Tong arose out of his alleged acceptance, without further or sufficient inquiry, of valuations of two properties, "the Sheen Profit Centre" and the "Pegasus Property", prepared by Vigers Hong Kong Limited ("Vigers") for the directors of Kong Tai International Holdings Company Limited ("the company") for the purposes of the financial statements to which reference is made in the complaint, and relied on by Mr. Tong for the purposes of the audit of those financial statements. 4. The facts are as follows. 5. In late 1994, the Town Planning Board approved a change in the usage of the Sheen Profit Centre from "industrial" to "commercial" and the usage of the Pegasus Property from "industrial" to "industrial and commercial". The company intended to redevelop these properties. 6. Vigers was requested to perform a valuation of the Sheen Profit Centre and the Pegasus Property for accounting purposes as at 31 March 1995 on the basis of redevelopment of the two properties as planned by the company at that time. 7. Vigers produced a valuation report dated 5 July 1995 ("the 5 July 1995 valuation report") which sets out, inter alia, the open market value of the Sheen Profit Centre and the Pegasus Property as at 31 March 1995 for accounting purposes at HK$166m and HK$275m respectively. These figures represented the gross development values of the properties; i.e., values arrived at on the assumption that the developments were completed and available for sale on the open market on 31 March 1995 (but without deduction of the costs of redevelopment and any associated costs). A note was included in the summary of the valuation stating that the properties were "valued on a redevelopment basis". A covering letter referred to "the re-sale value of the properties". 8. A copy of the 5 July 1995 valuation report and covering letter was passed by the company directly to the company's auditors for the purpose of their audit to the annual report. The open market values of the Sheen Profit Centre and the Pegasus Property stated in the 5 July 1995 valuation report were included in the annual report. As the 5 July 1995 valuation report was stated in its heading to be a valuation for accounting purposes, the management, and the auditors of the company, took comfort in including the valuations in the accounts included in the annual report. 9. Subsequently, however, the directors, after being approached by potential purchasers, and after considering the high redevelopment costs, decided to sell the Sheen Profit Centre and the Pegasus Property in their existing states. 10. In October 1995, the management reviewed the valuation in the annual report again, and also certain files relating to the company's properties. One of these files contained a valuation report prepared by Vigers dated 18 July 1995 in respect of the Pegasus Property for use by the company to raise finance from banks (the earlier valuation report was not used for that purpose because the valuation contained in it was not sufficiently recent). This later valuation report stated the value of the Pegasus Property to be HK$125m, using the residual method of valuation, based on the assumption that the Pegasus Property would be redeveloped into industrial-office buildings. This led the (new) management of the company to query the valuations of the Sheen Profit Centre and the Pegasus Property as at 31 March 1995. The directors then held a series of meetings with the company's auditors in October and November 1995 to discuss the matter. 11. In November 1995, Vigers was instructed to assess the open market value of the Pegasus Property on an "as is" basis, i.e. based on that property's existing use, in connection with the sale of that property. The Pegasus Property was valued by Vigers on those instructions, in a valuation report dated 4 December 1995, at HK$100m. 12. The Sheen Profit Centre and the Pegasus Property were finally sold to independent third parties for HK$105m and approximately HK$92m respectively. 13. In late December 1995, Vigers clarified with the Stock Exchange that the valuations of the Sheen Profit Centre and the Pegasus Property as shown in the 5 July 1995 valuation report were made on a gross development value basis and the valuation made in respect of the Pegasus Property contained in the valuation report dated 4 December 1995 was made on an "as is" basis, which accounted for the difference in the valuation figure in respect of the Pegasus Property. It was explained to the Stock Exchange that the difference between the value of the Pegasus Property stated in the 5 July 1995 valuation report and the value of the Pegasus Property stated in the valuation report dated 4 December 1995 was due to the first valuation having been conducted on a "redevelopment" basis and the second valuation having been conducted on an "as is" basis. Furthermore, Vigers clarified that the development cost and the direct associated cost were not deducted from the gross development value of HK$275m as shown in the valuation report and that the site value of the Pegasus Property net of the development cost should be HK$125m. 14. Originally, when the board of directors signed off the annual report on 17 August 1995, it was the board's intention to redevelop the Pegasus Property and Sheen Profit Centre. Accordingly, it was appropriate that a redevelopment value be included in the accounts. However, after the board decided to dispose of these two properties, it was then appropriate that the then value should be stated on an "as is" basis. 15. On 29 December 1995, the company's auditors were given access to and reviewed the supporting calculations upon which the valuation report had been prepared. They confirmed that a gross development value had been used in the valuation report and that, instead, the net redevelopment value of the two properties should have been included in the annual report. The Society's investigation 16. The Society decided to investigate what had gone wrong; and, following some earlier correspondence, in a letter of 29 March 1996 addressed to the company's auditors, the Society wrote this :
17. As to question (1), the letter continued as follows :
As to question (2), the letter continued as follows :
I need not read any more of this letter. Statements 3.101 and 3.282 18. The references made to these Statements in the complaint and in the Society's letter of 29 March 1996 need some further elaboration. 19. Statement 3.101 contains a Statement of Auditing Standard relating to the "Audit Approach". Paragraph 7 of this reads as follows :
20. Statement 3.282 contains an Auditing Guideline in relation to "Reliance on Other Specialists". In the Introduction to this guideline it is said :
21. In paragraph 5, it is pointed out that during the course of an audit, the auditor may need to consider among other things audit evidence in the form of valuations. 22. Under the rubric "Evaluating the findings of the specialist" appear paragraphs 15 to 19. It will be sufficient for me to read paragraphs 15 to 17 :
The basis of the valuations contained in the 5 July 1995 valuation report 23. The 5 July 1995 valuation report refers to a valuation on "redevelopment basis". The valuation is of the open market value of the properties at 31 March 1995. The question is : how has that open market value been ascertained? This raises basic questions about the art or science of valuation. There is no difficulty in obtaining a value for a property when comparables can be used in order to place a value on the property to be valued. But that, although the best, is often not an available method of valuation. It is obviously not available when the property is going to be redeveloped. In those circumstances, the method of valuation of the property to be redeveloped to be adopted will be what is known as the residual method. That is a means of valuing the property by reference to its development potential; it involves deducting costs and developer's profit from the estimated completed development value. It relies on a series of assumptions made by the valuer which produce an arithmetical calculation of the expected current sale value as at the relevant date with the property being developed or held for development or redevelopment. 24. Now the gross redevelopment value of a property (which is what the 5 July 1995 valuation report placed on the properties here) is a valuation which does not strip out the costs of the development and the costs associated with it. It is of absolutely no use for accounting purposes. The proceedings before the Disciplinary Committee 25. It is in these circumstances that the Disciplinary Committee came to consider the complaint against Mr. Tong. 26. Before the Disciplinary Committee, evidence was given on behalf of the Society supporting what had been stated in the Society's letter of 29 March 1996 to which I have already referred. 27. Mr. Tong, who was represented by Counsel, led evidence from Paul Lougher Brown, a chartered surveyor, whose evidence was to the effect that there was nothing in the 5 July 1995 valuation report to put Mr. Tong on inquiry as to the basis of valuation which Vigers had adopted. He confirmed that since the 5 July 1995 valuation report "was prepared for Accounting Purposes, the Gross Development value would have been meaningless and was irrelevant." 28. Mr. Tong also led evidence from Kenneth Graeme Morrison, a Member of the Institute of Chartered Accountants of Scotland and a Fellow of the Hong Kong Society of Accountants. His evidence was to the effect that he did not consider that Mr. Tong had failed to comply with paragraph 7 of the Auditing Standard 3.101 or with the Auditing Guideline 3.282, with relation to the 5 July 1995 valuation report. 29. But the Disciplinary Committee, as I have already indicated, preferred the Society's evidence. It found the complaint proved and reprimanded Mr. Tong. The appeal 30. On this appeal, Mr. Bleach, S.C., submitted that in the absence of reasons for the Disciplinary Committee's conclusions (it refused to give reasons when asked to do so) Mr. Tong is placed at a serious disadvantage. He says Mr. Tong does not know what he was convicted of or why and he says that, although there may be no statutory or other duty to give reasons laid upon a tribunal such as the Disciplinary Committee here, on the facts of this particular case, justice could not be done to Mr. Tong unless such reasons were given. 31. I am unable to accept this submission. 32. I do not wish to suggest that a professional body armed with disciplinary powers can never be under an obligation to give reasons for its decisions. It may indeed sometimes be the case that justice cannot be done to the person charged with a disciplinary offence unless he is given reasons for the decision against him. If, for example, he has a right of appeal against the exercise of a discretion, fairness may dictate that he be told why the discretion has been exercised against him, so that he and the appellate tribunal can see whether the discretion has been properly exercised. But I am quite satisfied that, in the present case, Mr. Tong was perfectly able to understand what was alleged against him and was given every opportunity to deal with it. That being so, the Disciplinary Committee was under no obligation to do any more than to find the charge against him proved, as it did. 33. That of course is not the end of the matter. The question remains whether this court can, and should, reverse the decision of the Disciplinary Committee on substantive, as distinct from procedural, grounds. In order to do that, we must be satisfied, in my judgment, that no Disciplinary Committee properly directing itself on the material before it could reasonably have come to the conclusion to which it did come. 34. Mr. Bleach submitted that, since the only expert evidence laid before the Disciplinary Committee was that of Mr. Brown and Mr. Morrison, and both of them supported Mr. Tong in relation to the matters complained of, it was not open to the Disciplinary Committee to come to the conclusion to which it did come. 35. I am also unable to accept this submission. 36. Every professional body is entitled to apply its own professional judgment to a case in which one of its members is called on to justify his conduct in (allegedly) failing to observe a standard or guideline laid down by that professional body for the protection of those dealing with members of that professional body. It is not, in my judgment, for this court to second-guess the professional judgment of a Disciplinary Committee such as this except where it can be seen that it has plainly misread the evidence and come to a conclusion which is contrary to the evidence or is otherwise plainly wrong. In my judgment, that cannot be said of the conclusion of the Disciplinary Committee here. The result 37. For the reasons I have endeavoured to state, I would dismiss this appeal. Liu, J.A.: 38. I gratefully take the material facts from my Lord, Godfrey JA. 39. There exists no common law duty for a decision-maker to provide reasons. See legal history set out in Public Service Board of New South Wales v Osmond, [1986] 60 ALJ 209. Traditionally, judicial decisions do not suffer from it. See also S.60(1) of the District Court Ordinance and O.42 r 5B(1) RSC. In Doody v Secretary of Estate for the Home Department, [1993] 3AER 92 at p. 110b, Lord Mustill acknowledged the sad fact that "the law does not at present recognise a general duty to give reasons for an administrative decision." In Doody case, supra, at p. 107e, Lord Mustill found "a perceptible trend [in judicial review cases] towards an insistence on greater openness ........ in the making of administrative decisions". This has developed into a general tendency. Endeavours, some rational and others robust, have commendably been made in common law jurisdiction countries to encourage the giving of reasons. For decisions involving matters of great importance or impact such as that in Doody or Cunningham, fairness virtually cries out for reasons. The interest affected in this category is one either very highly regarded by the law or very crucial to the complainant. At p. 110b, Lord Mustill suggested in Doody that "such a duty [might], in appropriate circumstances, be implied". See also Lloyd v McMahon, [1987] A.C. 625 at pp.702-703; Immigration Tribunal v Lau Tak-piu & Others, [1992] 1 HKLR 374 at pp.380 & 382. The giving of reasons is more often demanded under the rubric of natural justice so that issues could be better focussed and a denial of justice avoided. See R v Harrow Crown Court, ex parte Dave [1994] WLR 98. In R v Civil Service Appeal Board, ex parte Cunningham [1991] 4AER 310 at p.320e, Lord Donaldson MR said : "Fairness requires a tribunal such as the board to give sufficient reasons for its decision to enable the parties to know the issues to which it addressed its mind and that it acted lawfully." In the same case, at p. 320b & e, the Master of the Rolls elevated the requirement to the "legitimate expectation" of a person against whom an adverse determination had been made. That is powerful guidance, but the law continues to set up tribunals with no express obligation to furnish reasons. We are not concerned here with matters of cardinal importance, nor strictly with breaches of rules of natural justice. The appellant complains of absence of reasons. It is also not argued on the basis that reasons had to be provided because of the circumstances, such as statutory framework, form of the inquiry, nature of the charge etc. but that the residual prejudices to the appellant could not have been prevented unless reasons were given. In the case before us, the focal point would seem, therefore, to be (as my Lord Godfrey JA analyses it in the course of the hearing of this appeal): would it be fair to allow the decision to stand without knowing the reasons? That is precisely what was advocated in R v Higher Education Funding Council, ex parte Institute of Dental Surgery, [1994] 1 WLR 242 at p.261E, following Cunningham: "fairness calls for reasons to be given" "in the circumstances of the particular decision". "Is a refusal to give reasons fair?". Doody, supra p.110e, per Lord Mustill. Posed as a question, once answered in the negative, it would be necessary to find a legal peg to hang an appellate court's intervention. For a decision made upon the prima facie evidence "that something has gone wrong" as that in Cunningham, which evidently needs some explanation, it would be relatively easy to justify an intervention because the absence of or failure to give reasons may readily be taken as there being no good reason at all to give. That would provide sufficient justification for intervening. In R v Dairy Produce Quota Tribunal and Minister for Agriculture, Fisheries and Good, ex parte PA Cooper & Sons, [1993] C.O.D. 276-359, at p.227/1; [1993] 1 EGLR 13, Kennedy J found the absence of reasons for a conclusion reached contrary to "all or part of the evidence ......all one way" unacceptable. In Padfield v Minister of Agriculture, Fisheries and Food [1968] AC 997 at p. 1053G-1054A and p. 1061G-1062A respectively Lord Pearce and Lord Upjohn said:
In R v Trade and Industry Secretary, ex parte Lonhro, [1989] 1 WLR 525 at 539H-540B, Lord Keith approached the same question with an in-depth and, perhaps, more rational analysis:
40. It is not always clear when a decision-make should give reasons. Sedley, J. stated what would appear to be obvious in R v Universities Funding Council, ex parte Institute of Dental Surgery, supra at p.257B-C:
41. Most administrators are reluctant to provide reasons for their decisions. Professional tribunals are no exceptions. Not giving reasons may well be more convenient, and it is not entirely without administrative wisdom to withhold reasons for the advice given by Lord Mansfield, CJ. to a colonial governor in 1790:
But the public deserves to be protected. In delivering his Hamlin Lecture 41 Series (1990) "Protection of the Public - A New Challenge", Woolf LJ, as he then was, said at p. 92:
It is now an almost uniform practice of Government Departments, once judicial review is on foot, to explain their decisions or actions mostly at the leave stage. In balancing justice and convenience, it is difficult to appreciate why reasons are still not being provided to-day by Government Departments at the time when a decision is made. After all, Government Departments and public officers alike are expected to conduct judicial review proceedings with all their "cards face up on the table". See R v Lancshire County Council, ex parte Huddlestone [1986] 2 AER 941 at p.945g/h, per Donaldson MR. 42. These ratio go a long way in regulating conduct of a less public inquiry. In disciplinary proceedings, the Medical Council has, by tradition, given no reasons for their decisions. As stated in Libman v General Medical Council [1972] AC 217 at p.221A-B, since
In the giving of reasons, the courts have been less lenient with the other professional groups, such as solicitors and dentists. See In re a Solicitor (CO/1535/93), Times 5 April 1994 and Institute of Dental Surgery, supra. But I do not see why, in appropriate circumstances, this principle should not be liberally extended to any committee hearing. 43. There has been an alarming increase of successful appeals against the decisions of professional bodies. It must be recognised that over-legalising informal disciplinary proceedings is undesirable. Most disciplinary tribunals are presided over by men or women with no legal qualifications. Even solicitors chairing the Law Society Disciplinary Committee hearings are no professional judges. I do not doubt that they are able to and can return correct verdicts, but these proceedings are often distressfully flawed in the courts by a fault-finding expedition in which non-professional judges are clearly more vulnerable. Our society would be better served if those practising in or close to public law could be more self-disciplined and less overzealous, lest the professional bodies striving to upkeep professional competence and integrity would soon be drowned in a sea of tedious litigation. After all, the professions are best judged by their own peers. Sadly, time and again it falls upon the courts to maintain a proper balance. 44. The core complaint here is not that the Disciplinary Committee had or might have misread the evidence but that without given reasons the appellant is greatly disadvantaged in prosecuting his appeal. It is contended that the appellant is not even able to identify the errors of the Disciplinary Tribunal, the decision of which he seeks to overturn. Leading counsel for the appellant, Mr Bleach, directs our attention to the views expressed in the judgment of Hooper, J. in R v Ministry of Defence, ex parte Murray, Times 17 December 1997; Independent 18 December 1997. Cunningham, Doody and Dental Surgery would seem to have been there accorded a place of prominence to the exclusion of others, but the infinite variety of cases cannot really be all ringed in by a rigid guideline for the giving of reasons. In each case, one would be well advised "to begin by looking at the question in the round, and inquiring what requirements of fairness, germane to the ...... appeal". Doody at p.107d/e, per Lord Mustill. Mr Huggins SC invites us to take just that common sense approach. Counsel submits that what is germane to this appeal is the free exercise of or the alleged hindrance to Mr Tong's right to appeal. That, it is argued, embodies the requirements of fairness and rationality in this case. This appeal falls, therefore, to be decided within a very narrow compass viz. has the appellant been materially prejudiced in the prosecution of his appeal by the absence of reasons? 45. I have set the scene in which this appeal should be considered. Re-visiting these authorities has assisted me immensely. So it is, the statutory regime does not require reasons to be provided by the Disciplinary Committee, but it is not to say that the law prohibits reasons to be given. It is not suggested that there were substantial issues or special features which virtually demanded reasons to be given. The issue central to this appeal is: how has the appellant been affected by the absence of reasons? Has the appellant been in any way inhibited from prosecuting his appeal? Ultimately the question must be whether in all the circumstances it was unfair for the Disciplinary Committee to give no reasons. 46. In this case, the appellant's conduct was sought to be supported as being professionally acceptable. It would be the gravest of the breaches of the rules of natural justice to cast aside evidence, all one way, without giving any reasons. See Cooper, supra. Both Mr Brown and Mr Morrison testified that the Vigers' valuations could be safely embraced without more in the light of Mr Tong's assessment of the calibre of the experts, their reliability and integrity, the further works he had undertaken and his personal discussion with the management - all this in the context of an "as is" report for the company's usual financial statement. But the fact remains that the matters under complaint as particularised in paragraph 4 of Mr Huggins' skeleton argument were not brought under the requisite detailed examination. The Disciplinary Committee had merely to decide whether the Association's standard was observed, not what views were taken of the appellant's inaction or omission by Mr Brown or Mr Morrison. In any case, there was no evidence all one way. The appellant is not critical of the basic requirements of the relevant Association standard and guidelines save that it is submitted that the Disciplinary Committee should have taken a compendious view of the guidelines, 16 in conjunction with 13 and 15. It should not be overlooked that these guidelines are largely matters of professional good sense and discretion, which the Disciplinary Committee was in the best position to judge. There is no evidence that the Disciplinary Committee was focusing exclusively or unduly on guideline 16, and the need to have regard to all these simple grounds rules could not have conceivably been overlooked. The appellant was found to have breached a professional standard laid down by the Association. In essence, the appellant, Mr Brown and Mr Morrison maintained that the property values in Vigers' report did not require an Association audit detailed examination. The appellant had, however, himself thought necessary to take various steps in verifying the other information in the same report. The Disciplinary Committee took the view that the appellant's selective compliance with the requirements of paragraph 7 of the Statement of Auditing Standard 3.101 for only part of the Vigers' report, had fallen short of the professional standard expected of him as an auditor. 47. In conclusion, there is no statutory requirement for reasons to be given by the Disciplinary Committee. It is not suggested that the circumstances were exceptional. Nothing of great importance was to be decided. The evidence was not all one way. The absence of reasons does not of itself suggest any shortfall, but has the appellant suffered any material disadvantages in the exercise of his right to appeal? The issue was uninvolved and the finding was accordingly succinct. The conduct complained of gives rise to no difficulty for this court, and it must have been all the more an elementary issue for the accountants sitting in the Disciplinary Committee. Eloquent though Mr Bleach is, the inquiry did not raise any substantial point of law or fact. It is inconceivable that the Disciplinary Committee could have misread the evidence or misapplied the guidelines. The Disciplinary Committee expressed in no uncertain terms that they were satisfied on the evidence that the charge was proved. Clearly, the Disciplinary Committee could so find and that was sufficient. See Peatfield v General Medical Council [1986] 1 WLR 243. It is perfectly obvious, even without any express reference in the decision, what the Disciplinary Committee was addressing its mind to and what conclusion it had reached. In this simple charge, nothing more could be added to the very decision itself by further elaboration. The decision as given need not be further explained or supplemented by reasons. 48. In all the circumstances, I am unable to say that in the context of his right to appeal, the bare decision of Disciplinary Committee, in the way it was pronounced, was unfair to the appellant. The appellant knows perfectly well what he has to overcome in an appeal and I am not persuaded that the prosecution of his appeal has been materially affected. Stripped of all the elegant arguments, the decision does not create any difficulty for the appellant in the exercise of his right to appeal. I agree that the appeal should be dismissed. Leong, J.A.: 49. The Appellant was found by the Disciplinary Committee of the Hong Kong Society of Accountants to have failed to comply with paragraph 7 of the Statement of Auditing Standard in the audit of the Financial Statements of the Kong Tai International Holding Co. Ltd. The Appellant relied on the Vigers' valuation report which was prepared for such accounting purposes. 50. In relation to audit evidence, paragraph 7 of the Statement of Auditing Standard requires that the auditor should obtain relevant and reliable audit evidence sufficient to enable him to draw reasonable conclusions therefrom. Where the audit evidence is specialist audit evidence, paragraph 15 of the Auditing Guideline states that the auditor will need to evaluate the audit evidence provided by the specialist to determine whether it is sufficient relevant and reliable enough for him to draw reasonable inference therefrom and paragraph 16 of the guideline states that the auditor should make a detailed examination of the specialist's evidence. 51. The Vigers' report sets out the "open market value on ... a redevelopment basis" of two properties. The valuation was in fact on "Gross Development Value" basis with the result that the net value of the two properties was grossly overstated in the financial statements of the company's annual report and shareholders' equity increased by 43%. The error was subsequently discovered after the audit when the Appellant carried out further review and investigation into the matter. 52. The Appellant's submission is that there was nothing wrong in the Vigers' report that would have alerted the Appellant that the properties were valued on "Gross Development Value" basis. The report was prepared according to the instructions of the company to assess the open market value of the two properties for accounting purposes. His experts Mr. Brown, a valuation expert and Mr. Morris, an accountant whose evidence had not been contradicted saw nothing wrong in the Appellant relying on the report. Mr. Brown found nothing particular about the Vigers' report that would lead a surveyor let alone a man of a different profession like an auditor to think that the valuation was on a "Gross Development Value" basis. His opinion was the difference in value between the two properties and other properties in the same valuation exercise was not surprising since they were whole buildings or sites that had redevelopment potentials. Open market value albeit on a redevelopment basis was quite different from "Gross Development Value" basis, the latter being meaningless and irrelevant for an "as is" accounting purposes. Mr. Morris was of the same opinion that the Vigers' report was complete and it was reasonable without more for the Appellant to rely on it for accounting purposes. 53. It is submitted that in view of such expert's evidence, the Appellant was entitled to accept the report at its face value that the properties were assessed on an open market value basis and it was not necessary for him to carry out such further inquiries as would have been necessary had there been any indication in the report that the valuation was on "Gross Development Value" basis. Further the Appellant had made various inquiries on matters such as the approval for the change of user, the company's confirmation as to completeness of the valuation report, plan to redevelop the properties, etc. On such evidence, it is submitted no reasonable tribunal properly directed would have come to the conclusion as the Disciplinary Committee did that the Appellant had failed to comply with the necessary standard in the audit of the Vigers' report and the financial statements. The finding of the Disciplinary Committee therefore cannot stand. 54. The Respondent submits on the other hand that the reference to "open market value on a redevelopment basis" in the report, given the Appellant's knowledge of the company's intention to redevelop the properties, would have alerted the Appellant that some clarification as to what it meant should be made. If he did, he might have found it necessary to make inquiries as to development costs and the company's ability to carry out the redevelopment. He should have followed the guidelines to evaluate the Vigers' report and carried out a detailed examination of it and make inquiries on Vigers' before relying on it. If he had done so, the error would probably have been discovered. The fact that he did not do so, is a failure to comply with paragraph 7. On that basis, it is submitted the conclusion of the Disciplinary Committee cannot be faulted. 55. The issue is: Did the Appellant follow the guidelines to evaluate the Vigers' report and make a detailed examination of it to ensure that there was relevant, reliable and sufficient audit evidence from which he could draw reasonable influence before he relied on it? There was evidence before the Disciplinary Committee that the valuation of the properties was on an open market value redevelopment basis the meaning of which was not exactly clear and called for clarification. There was evidence that the basis of the Vigers' valuation was different on the basis used in previous years in respect of the valuation of the same properties for the same accounting purposes. There was evidence that the value of these properties was higher than other properties in the same valuation exercise and the Appellant was in possession of information relating to the estimated redevelopment costs which reflected that the net value of the properties was less than those stated in the Vigers' report. Where such special features existed, the Appellant should have been more astute that he should adhere to the guideline when auditing the report and subsequently the financial statements. Nevertheless the Appellant took the report at its face value. The guideline provides that the Appellant should evaluate the report and make a detailed examination of it. The Appellant might be entitled to think that he could take the report at its face value because Vigers' was a reputable international valuer but his failure to evaluate and examine in detail the report, the purpose of which was to detect if there was any fundamental error, before reliance was placed on it is evidence from which it may be inferred that there was a non compliance of paragraph 7 of the Statement of Auditing Standard. There was ample evidence for the Disciplinary Committee to find the complaint against the Appellant proved. 56. In disciplinary proceedings of this nature, there is no duty, general or statutory in the present case to state reasons for the Disciplinary Committee's decision. All that was required of the Disciplinary Committee at the conclusion of the proceedings was to express that they were satisfied that the complaint had been made out and proved and this they did. The lack of reasons or sufficient details on the finding would not have prejudiced the Appellant who had every opportunity to understand the nature of the complaint against him and to conduct the proceedings accordingly. 57. In the circumstances, I, too, would dismiss this appeal.
Representation: Mr. John Bleach, S.C. (M/s. Wilde Sapte) for Appellant Mr. Adrian Huggins, S.C. (M/s. Johnson Stokes & Master) for Respondent |
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