Registrar of the Hong Kong Institute of Certified Public Accountants v. Chan Yui Hang

CACV 417/2023

[2026] HKCA 1516

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 417 OF 2023

(ON APPEAL FROM THE DISCIPLINARY COMMITTEE OF THE HONG KONG INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS PROCEEDINGS NO. D-17-1231P)

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BETWEEN

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J U D G M E N T

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Hon Chu VP (giving the Judgment of the Court):

A. Introduction

1.By a Reasons for Decision (“the Decision”) dated 28 February 2023, the Disciplinary Committee (“Disciplinary Committee”) of the Hong Kong Institute of Certified Public Accounts (“Institute”) found four complaints preferred by the Complainant against the Respondent (“Mr Chan”) proved.  By a Decision on Sanctions and Costs dated 23 November 2023 (“Sanctions Decision”), the Disciplinary Committee imposed the following sanctions and costs order against Mr Chan:

(1)  a reprimand under section 35(1)(c) of the PAO;

(2)  a 24-month prohibition on the issuance of a practising certificate under section 35(1)(db) of the PAO, to run concurrently with a 12-month prohibition imposed in previous disciplinary proceedings[1]; and

(3)  an order to pay the complainant the costs and expenses of the disciplinary proceedings and of the previous disciplinary proceedings totalling HK$101,327.

2.This is Mr Chan’s appeal against the Disciplinary Committee’s orders brought pursuant to the now repealed section 41(1)(b)(iii) of the Professional Accountants Ordinance, Cap. 50 (“PAO”)[2].  The parties have consented to this appeal being determined on the papers without a hearing. 

B.  Background

3.Mr Chan is a certified public accountant.  At the material time, he was one of the two practising partners of D.C. (CPA) & Associates (“the Practice”). The Practice had no employees, and its audit work was outsourced to a service company, ADGS Advisory Limited (“the Service Company”).  

4.The Practice was selected for a practice review in March 2014, which identified significant deficiencies in its audit methodology, quality control of the audit work and supervision of the audit engagements.  The details of the findings were set out in the reviewer’s report dated 23 June 2015 (“2015 Reviewer’s Report”)[3].

5.A follow-up review took place from 5 April to 5 July 2016.  It identified further and, in some instances, recurring deficiencies in the Practice’s quality control and audit engagements, based on selected review of two private entities (Client G and Client A) and 22 other spot-checked engagements.  On 9 August 2016, the draft reviewer’s report was sent to Mr Chan for his comments.  Mr Chan responded by a letter dated 3 October 2016 (“3-10-2016 Letter”).[4]  The reviewer’s report was finalised on 14 November 2016 (“2016 Reviewer’s Report”).[5]

C.  The complaints

6.Based on the findings in the follow-up practice review, the Practice Review Committee of the Institute commenced disciplinary proceedings against Mr Chan and the other practising partner[6].  In the letter of complaint dated 1 September 2017 (“Complaint Letter”)[7], four disciplinary complaints were preferred against Mr Chan under section 34(1) of the PAO (respectively “1^st Complaint” to “4^th Complaint”) as follows: 

(1)  1^st Complaint - Failing or neglecting to observe, maintain or otherwise apply a professional standard, namely, Hong Kong Standard on Quality Control 1 (“HKSQC 1”) in that the Practice did not implement adequate quality control, policies and procedures in respect of the safe custody of engagement documentation, assignment of engagement teams, file assembly, and engagement performance, contrary to section 34(1)(a)(vi) of the PAO. 

(2)  2^nd and 3^rd Complaints - Failing or neglecting to observe, maintain or otherwise apply a professional standard namely, paragraph 6 of Hong Kong Standard on Auditing (“HKSA”) 500, in failing to design and/or perform audit procedures appropriate for the purpose of obtaining sufficient appropriate audit evidence in relation to the audit of respectively the financial statement of Client G for the year ended 31 December 2014 and the financial statement of Client A for the year ended 31 March 2015, contrary to section 34(1)(a)(vi) of the PAO.  

(3)  4^th  Complaint - Failing or neglecting to observe, maintain or otherwise apply a professional standard namely, paragraphs 100.5(c) and 130.1 of the Code of Ethics for Professional Accountants (“Code”), in failing to maintain the necessary professional knowledge and skills at the level required to ensure clients received competent professional services, and/or diligently carry out professional services, in accordance with the applicable professional standards, contrary to section 34(1)(a)(vi) of the PAO.

D.  The 2018 disciplinary hearing

7.An oral hearing of the disciplinary proceedings was held on 22 October 2018 (“2018 Hearing”) before a differently constituted disciplinary committee (“1^st Disciplinary Committee”). Mr Chan was absent and the hearing proceeded in his absence.  All four complaints were found proven and, after receiving submissions from the parties, sanctions were imposed on him[8].

8.Mr Chan appealed the 1^st Disciplinary Committee’s decisions to this Court.[9]  On 23 March 2021, this Court (Kwan VP, Cheung and Chu JJA) set aside the decisions, primarily for the reason that, in deciding to proceed in Mr Chan’s absence, the 1^st Disciplinary Committee did not fully and correctly understand Mr Chan’s medical documents, and he was prejudiced by the decision[10].  The matter was ordered to be remitted to a differently constituted disciplinary committee with directions for a re-hearing.  No order was made on the costs of the appeal, and the costs of the previous disciplinary proceedings were reserved to be dealt with by the newly constituted disciplinary committee.  

E.  Disciplinary proceedings post-2018 disciplinary hearing

9.Subsequent to the appeal, a new Notice of Commencement of Proceedings was issued to Mr Chan on 29 October 2021.  Mr Chan filed a Supplemental Case[11], which essentially comprised the hearing bundle of his appeal to this Court.  Included in the Supplemental Case were Mr Chan’s Case and his Submissions on Sanctions (“1^st Sanctions Submissions”) submitted to the 1^st Disciplinary Committee.  The Complainant then filed a reply to the Supplemental Case (“Complainant’s Reply to Supplemental Case”)[12], to which Mr Chan made a written response[13].  

10.The Disciplinary Committee directed that the core bundle used for the 2018 Hearing, the Supplemental Case and the subsequent reply and response of the Complainant and Mr Chan were admitted as the core bundle, submissions and evidence for the re-hearing. Also pursuant to the Disciplinary Committee’s directions, both parties filed an opening submission (respectively “Complainant’s Opening” and “Mr Chan’s Opening”)[14] and a  reply submission in response to the other side’s Opening[15] (respectively “Complainant’s Reply Submission” and “Mr Chan’s Reply Submission”).  

F.  The Disciplinary Committee’s decisions

11.By agreement of the parties, the Disciplinary Committee determined the complaints on paper without an oral hearing.  On 28 February 2023, the Disciplinary Committee handed down the Decision, finding all four complaints against Mr Chan proved.  By the Sanctions Decision, the Disciplinary Committee imposed the sanctions and costs order set out in §1 above. 

F1.  1^st Complaint

12.The 1^st Complaint, which concerns the Practice’s failure to establish an adequate system of quality control under paragraphs 16, 17 and 57 of HKSQC 1 in four areas, is based on the following findings in the follow-up practice review:

(1)  Safe custody of engagement documentation: The reviewer found the Practice failed to comply with paragraph 46 of HKSQC 1 in that it was sharing office space with other audit firms and the Service Company, the audit files and client information were easily accessible by other parties, and there were no established policies and procedures in place to safeguard confidentiality and ensure safe custody of the files and information.[16]

(2)  Assignment of engagement team: The reviewer found the Practice failed to comply with paragraph 31 of HKSQC 1 in that it did not employ any staff and all the audit work was done by the Service Company, and there were no policies and procedures to ensure the staff assigned by the Service Company had the necessary competence and capabilities to do the audit.[17]

(3)  Engagement performance:

(3.1)  The reviewer found the Practice failed to comply with paragraph 32 of HKSQC 1 in that its audit work and documentation in respect of Client G, Client A and 22 spot-checked engagements did not meet a number of the requirements under the HKSA. Some of them were repeated shortcomings, which included failure to: (a) understand internal controls as required by HKSA 315; (b) perform audit procedures to address the risks of management override control as required by HKSA 240; and (c) obtain sufficient audit evidence to identify all “subsequent events” occurring between the date of the financial statements and the auditor’s report that required adjustment of, or disclosure in, the financial statements as required by HKSA 560.[18]  There were also new deficiencies which included failure to determine performance materiality and a clearly trivial amount as required by HKSA 320.[19]

(3.2)  In addition, Mr Chan admitted to the reviewer that the audit working papers of the 22 spot checked engagements contained limited information to support the auditor’s opinion and deficiencies indicative of a lack of supervision to ensure that the engagements were performed in accordance with professional standards.  Specifically, the deficiencies included (a) failure to ensure (i) in group audits, audit work was performed on significant components audited by another component auditor (Client ETD), (ii) audit procedures were carried out on the accounts of the financial statements (client RCI), and (iii) audit work or sufficient audit work were performed on accounts that were material to the financial statements (Client LCC and 11 other engagements); (b) lack of documentation about the details of the work done in the vouching test (Client RCI and Client SFI); and (c) absence of information in the working papers of some engagements (including client SFI) to show the engagement partners had reviewed the audit work performed and when it was done.

(4)  File assembly:  The Practice failed to comply with paragraphs 45 and A54 of HKSQC 1 in that the working papers of seven spot checked engagements were not in the audit files, which indicated that final engagement files were not assembled timely (ordinarily within 60 days) after the issuance of the auditor’s reports.[20]

13.The Disciplinary Committee made the following findings on the 1^st Complaint[21]:

(1)  Safe custody of engagement documentation: In the 3-10-2016 Letter, Mr Chan did not dispute the deficiencies found  by the reviewer and undertook to address the non-compliance. 

(2)  Assignment of engagement team: In the same letter, Mr Chan did not  dispute the reviewer’s findings in this area and  undertook to implement appropriate procedures to address the non-compliance. This showed that the Practice did not have effective procedures to ensure proper assignment of staff to an engagement.

(3)  Engagement performance: Mr Chan explained in the same letter that the engagement partners relied on the audit manager to monitor the engagements and only performed a rough review of the working papers before issuing the auditor’s reports.  The respondent’s explanation together with the reviewer’s findings demonstrated an absence of effective policies and procedures to ensure compliance with relevant auditing standards and a lack of proper supervision, giving rise to concerns over the sufficiency of audit evidence to support the opinion expressed in the auditor’s reports.  

(4)  File assembly: Mr. Chan accepted the reviewer’s findings and had undertaken to implement procedures to address the non-compliance.

14.The Disciplinary Committee concluded that the Practice did not have adequate quality control policies and procedures for the above four areas and that Mr Chan, as the person responsible for the Practice’s quality control system, had failed to comply with HKSQC 1.  The 1^st Complaint was accordingly found to have been proved.

F2.  2^nd and 3^rd Complaints

15.The 2^nd and 3^rd Complaints concern the lack of appropriate audit procedures for obtaining sufficient audit evidence in the audit of Client G and Client A, contrary to paragraph 6 of the HKSA 500 which requires an auditor to design and perform procedures that are appropriate in the circumstances for the purpose of obtaining sufficient appropriate audit evidence.

16.In relation to Client G, a company trading in computer parts, Mr Chan issued the auditor’s report in the name of the Practice for the year ended 31 December 2014.  The 2016 Reviewer’s Report (at §3.2) stated that this was the first-year audit by the Practice and the working papers did not show any audit work being done on the opening balances.  The facts and circumstances relied on by the Complainant included:[22] (a) the audit working papers did not show any audit work being done on the revenue and cost of sales accounts for assessing the validity and accuracy of the transactions in the profit and loss accounts; (b) while it was documented that the auditor carried out an inventory count on 5 January 2015, there was no audit work to test the transactions in the period between the year-end date (i.e. 31 December 2014) and the inventory count date (i.e. 5 January 2015) and to assess the underlying fair values of the inventories, and no year-end cut-off procedures or fair value assessments were performed; and (c) there was no evidence in the working papers that the audit staff who attended the audit count had received proper stock-take instructions and how stock items movement were controlled in the course of the stock-take.

17.In the case of Client A, a private entity providing telecommunication installation and consultancy services, Mr Chan issued the auditor’s report in the name of the Practice for the year ended 31 March 2015.  Similar to the initial practice review, the follow-up practice review found that the audit working papers had no evidence of audit procedures being carried out for the purpose of obtaining sufficient appropriate audit evidence for accounts that were material to the financial statements.  Specifically, (a) no substantive procedures were carried out on the service income and costs of sales accounts to ascertain the validity and accuracy of the transactions despite that the profit and loss accounts had recorded significant amount of service income and costs of services; and (b) no audit procedures were carried out to ascertain the existence and valuation of the balance of trade receivables at year-end, despite this represented 17% of the total assets[23].

18.The Disciplinary Committee was satisfied that the facts and circumstances relied on by the Complainant for the two complaints were proved.[24]  The Disciplinary Committee concluded that Mr Chan, being the engagement partner dealing with Client G and Client A, failed to comply with paragraph 6 of HKSA 600 in failing to ensure that sufficient and appropriate audit evidence was obtained so that a reasonable conclusion could be drawn on the above material accounts.  The 2^nd and 3^rd Complaints were found to have been proved.

F3.  4^th Complaint

19.The 4^th Complaint concerns non-compliance with sections 100.5(c) and 130.1 of the Code, which required a professional accountant to maintain the required level of professional knowledge and skill to ensure clients receive competent professional services, and to act diligently in accordance with applicable professional standards.  The Disciplinary Committee found this complaint proved in light of the findings of significant fundamental deficiencies in the Practice’s quality control system and the audit and assurance engagements of Client A and Client G and the spot checked engagements.  

F4.  Sanctions and costs order

20.After considering the submissions on sanctions and costs filed by the Complainant and Mr Chan, the Disciplinary Committee imposed the sanctions in §1 above for the reasons it gave in §§9 and 10 of the Sanctions Decision.

21.The Disciplinary Committee further ordered Mr Chan to pay the costs of the disciplinary proceedings subsequent to the 2018 Hearing (HK$39,120), and also the costs of the earlier part of the disciplinary proceedings (HK$62,297) for the reasons given in §§11 and 12 of the Sanctions Decision.

G.  This appeal

G1.  Grounds of appeal

22.By a Notice of Appeal dated 15 December 2023, Mr Chan appeals the Sanctions Decision to the Court of Appeal pursuant to section 41(1)(b)(iii) of the PAO.  Notwithstanding its repeal, the present appeal remains to be governed by section 41(1)(b)(iii) by reason of regulation 73(2) and (3) of the Accountant and Financial Reporting Council (Transitional and Saving Provisions and Consequential Amendments) Regulation, Cap. 588B[25].

23.The Notice of Appeal only contained general grounds of appeal, contending that the Disciplinary Committee erred in law and failed to consider material issues of law and evidence, and the sanction and costs orders were wrong and excessive.  It is only in his Skeleton Argument lodged on 10 March 2025 (“Mr Chan’s Skeleton Argument”) that Mr Chan set out specific grounds that go to challenge the findings on all four complaints as well as the sanctions and costs order.  His grounds of appeal may be broadly summarised as follows:

(1)  Ground 1 - 1^st Complaint

(1.1)  Safe custody of documentation: The Disciplinary Committee failed to consider material facts pertaining to the situation of the Practice at the material time which would have eliminated the concerns of the safe custody of the audit files and client information.[26]  

(1.2)  Assignment of engagement team:  The Disciplinary Committee was wrong to find that the Practice did not employ any professional staff, which was contradicted by the finding in the reviewer’s report. The Practice had employed competent and capable staff who are practising CPA to supervise the audit work carried out by the Service Company.[27]

(1.3)  Engagement performance: The Disciplinary Committee failed to consider that the Practice had in place a quality control manual and the reviewer had not identified any deficiencies in it.[28]  The Disciplinary Committee also wrongly stated that Mr Chan admitted to deficiencies found in four client audits (i.e. Client ETD, Client RCI, Client LCC and Client SFI) when the reviewer’s report made no mention of such admission.[29]

(1.4)  File assembly: The Disciplinary Committee wrongly relied on findings that were not in the reviewer’s report when it stated that “audit working papers” for “7 spot checked engagements” were provided upon the reviewer’s request whereas the reviewer’s report only mentioned a lack of specific “audit documents” without such particulars.[30]

(2)  Ground 2 - 2^nd Complaint

The Disciplinary Committee erred in finding that Client G was in its first-year audit when the Practice had been its auditor since 2007.  The findings on inventory audit work were incorrect as the working papers of Client show that audit procedures for stock-taking, cut-off procedures and stock valuation had been performed.[31]

(3)  Ground 3 - 3^rd Complaint  

The Disciplinary Committee failed to consider the evidence in the working papers on assessment of Client A’s materiality, and overlooked the fact that Client A was a small-scale company such that it was difficult for the Practice to fully adopt the audit standards.[32]

(4)  Ground 4 - 4^th Complaint

If the 1^st, 2^nd and 3^rd Complaints are not established, the 4^th Complaint should also fall away.[33]

(5)  Ground 5 - Procedural irregularity

The Complainant’s Reply Submission filed with the Disciplinary Committee on 29 July 2022 was not properly served on Mr Chan in that it was emailed to a general company email not used by him personally and mailed by ordinary post instead of registered post.  Mr Chan was seriously prejudiced as he was deprived of his right under rule 21 of the Disciplinary Committee Proceedings Rules to submit a reply.  The Decision and the Sanctions Decision should be set aside on this ground alone.[34]

(6)  Ground 6 - Sanction and costs order

The Disciplinary Committee erred in finding there was a lack of remorse and this was an aggravating factor.[35]  The wasted costs order of HK$62,207 was grossly unfair as the Court of Appeal had found the 1^st Disciplinary Committee was wrong to proceed with the 2018 Hearing in Mr Chan’s absence.[36]  

G2.  New evidence

24.Pursuant to the order of G Lam JA made on 6 November 2024, Mr Chan was given leave to adduce new evidence in this appeal.  The new evidence consists of: (a) Mr Chan’s proposed reply submission to the Complainant’s Reply Submission;[37] (b) the particulars of business registration of the Practice;[38] (c) two letters between D.C. (CPA) Limited and Client G’s former auditor exchanged in December 2007;[39] and (d) working papers in respect of Client A[40] (excluding three pages which were already in evidence before the Disciplinary Committee[41]); and (e) working papers in respect of Client G[42] (excluding 13 pages which were already in evidence before the Disciplinary Committee[43]).  Items (b) to (e) were put forward to support the submissions made in item (a).

25.The Complainant did not oppose to the order in order to save time and costs, despite its view, which had been made clear to Mr Chan, that he could have obtained the new evidence for use before the Disciplinary Committee, and the new evidence would not have an important influence on the result of the case.[44]

H.  Our reasons for decision

H1.  Applicable legal principles

26.This appeal is governed by well-established legal principles. First, the Court will not interfere with the decision of the disciplinary committee on substantive grounds unless it is satisfied that no disciplinary committee properly directing itself on the material before it could reasonably have come to the conclusion to which it did come.  As held in Tong Pon Wah v Hong Kong Society of Accountants [1998] 2 HKLRD 427 at 439 to 440[45]:

“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 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.”

27.Second, the Court will not disturb a sanction imposed by a specialist tribunal unless it is plainly wrong, excessive, or falls outside the reasonable range of options.  As explained in Registrar of the Hong Kong Institute of Certified Public Accountants v Leung Kam Man Victor, CACV 37/2016 (17 January 2017), at [11] to [16], the disciplinary committee has a margin of discretion in deciding the appropriate sanction for maintaining the standards of the profession, and the Court will not intervene so long as the sanction falls within the reasonable range of options. 

H2.  General observations

28.Before dealing with each of the grounds of appeal, we will point out that many of Mr Chan’s grounds and arguments are reiterations of his arguments in the disciplinary proceedings that were rejected by the Disciplinary Committee.  In particular, Mr Chan has sought to relitigate factual matters that were squarely before the Disciplinary Committee, such as his explanations for the office-sharing arrangement, the employment status of the audit personnel, and the quality of the audit working papers.  It must be stressed that an appeal is not an occasion to re-argue the same case in the hope that the court might take a more favourable view.  In an appeal from the decision of the disciplinary committee, this Court’s role is to review the decision, and not to conduct a fresh hearing on the merits.  Merely reiterating the points that had been made to the Disciplinary Committee without identifying material errors in the Disciplinary Committee’s rejection of them will not suffice.  

29.We turn now to consider the grounds of appeal.

H3.  Ground 1.1 – 1^st Complaint (safe custody of documentation)

30.Under this ground, Mr Chan complains that the Disciplinary Committee failed to consider: (a) the Practice was moving office during the reviewer’s visit which explained why files were misplaced; (b) the audit files were securely kept in a locked storage room; and (c) the office-sharing arrangement did not pose confidentiality risks because the entities sharing the office space were two audit firms related to him[46] and the Service Company which did the outsourced audit works for the Practice.[47]  He believes that these matters had escaped the attention of the Disciplinary Committee because they were omitted from the 2016 Reviewer’s Report.

31.However, in responding to the reviewer’s draft report, Mr Chan already explained in the 3-10-2016 Letter that the Practice was in the course of office relocation, and further proposed some corrective measures.  He also accepted in the letter that the Practice had not complied with the required quality control procedures and sought to offer explanations for the failures.  He  even asserted that the Practice was itself a victim, pointing out that most of the work in connection with the deficiencies identified by the reviewer was handled by an audit manager (“Mr Lo”).  In his Opening (at §§5 and 7), Mr Chan also sought to explain that the misplacement of the files was due to office relocation and it was an isolated incident.  The Decision had referred to the 3-10-2016 Letter and taken Mr Chan’s Opening into consideration.  There is no proper basis to suggest that the Disciplinary Committee had missed the explanations given by Mr Chan just because they were not mentioned in the 2016 Reviewer’s Report.

32.As to the assertion that the audit files were kept in a secured storage room, this was contrary to the findings in the 2016 Reviewer’s Report that the Practice did not have procedures in place to safeguard confidentiality and ensure safe custody of audit files and client information, and the files and information were easily accessible by other parties.  Mr Chan’s response to the findings in the 3-10-2016 Letter was that “The storage of audit files and clients’ information in the past were agreed by all stakeholders in the that [sic] area, the arrangement using a common area to storage [sic] the client information are [sic] based on Trust and Professional Ethics …”[48]  In Mr Chan’s Opening, it was said for the first time that “The documentation was placed in an individual storage room, which the key was, and remain to be in safe custody of the responsible staff”. Given that there was no mention of a secured storage room in the previous submissions made by Mr Chan, including the Supplemental Case, and the acceptance in the 3-10-2016 Letter that audit files and client information were stored in a common area, the Disciplinary Committee was entitled not to accept or rely on Mr Chan’s assertion in the Opening.

33.Mr Chan also argues there were no confidentiality risks because the two audit firms sharing the office space were related to him, and there are no rules prohibiting sharing of office by audit firms.[49]  This, however, is missing the point.  Paragraph 46 of HKSQC 1 mandates a practice to establish policies and procedures designed to maintain the confidentiality, safe custody, integrity, accessibility and retrievability of engagement documentation.  The issue is whether the Practice had satisfied the affirmative obligation under paragraph 46 by having in place the required policies and procedures generally and with specific regard to the office-sharing arrangement.  The fact that some of the entities sharing the office space are related entities that posed no or little potential risk to confidentiality and/or there were no actual incidents of information leak is irrelevant as it does not address the issue.  

34.In our view, it is within the purview of the Disciplinary Committee to judge whether, in light of the factual circumstances found by the reviewer, the office-sharing arrangement adopted by the Practice, regardless of the identity of the other occupants, demonstrated a lack of the safeguards mandated by paragraph 46 of HKSQC 1.  The Disciplinary Committee was entitled to find on the evidence that the office-sharing arrangement fell short of the requirement of the HKSQC 1.  We do not accept that the Disciplinary Committee had misunderstood the evidence or erred in concluding that the Practice had failed to put in place the required policies and procedures.  Ground 1.1 has no merit.

H4.  Ground 1.2 – 1^st Complaint (assignment of engagement team)

35.Under this ground, Mr Chan submits that the Disciplinary Committee was wrong to find that the Practice did not employ any professional staff.  He contends that Mr Lo and one Ms Tso were two certified public accountants employed by the Practice to supervise the audit work.  He further argues that the Disciplinary Committee’s finding was contrary to the 2016 Reviewer’s Report which stated that “the performance evaluation of the audit staff members were conducted by the audit manager and the former authorised signatory of the Practice”.  

36.These arguments are fundamentally flawed. First, the 2016 Reviewer’s Report noted that the audit staff were employed by the Service Company, with staff recruitment and management being handled by the Service Company, not the Practice.[50]  Second, Mr Chan acknowledged in his Opening (at §6) that Ms Tso was employed by the Service Company, not the Practice.  Third, in an initial request to summon Mr Lo to give evidence at the disciplinary hearing, Mr Chan stated that Mr Lo was employed by the Service Company as its Accounting and Business Advisory Manager on 30 May 2013 and his duties included supervision and review of the performance of the staff.[51]  Fourth, Mr Chan’s contention in his Reply Submissions (at §7) as to what he meant by “the Practice did not employ any staff” was “the Practice had outsourced its audit function to the Service Company and no ‘audit’ staff was employed” is clearly contrary to what he had previously stated and untenable.  

37.More importantly, the gravamen of this aspect of the 1^st Complaint goes beyond the employment status of Ms Tso and Mr Lo.  Paragraph 31 of HKSQC 1 requires a practice to establish policies and procedures to assign appropriate personnel with the necessary competence and capabilities to, among other thing, perform engagements in accordance with professional standards and applicable legal and regulatory requirements.  The crux of the complaint and the Disciplinary Committee’s finding was that the Practice had delegated its core audit functions and supervision to an external service company without established policies and procedures in place to ensure the personnel performing the work was appropriate and possessed the necessary competence. The Disciplinary Committee was concerned that under the outsourcing arrangement the Practice exercised no direct control over the qualifications and supervision of those carrying out the audit work in the name of the Practice.  Mr Chan was clearly aware of the problem as he had proposed in the 3-10-2016 Letter, and as part of the Practice’s action plan, that the Practice should employ its own staff instead of engaging the Service Company to monitor the audit work.  

38.Furthermore, Mr Chan’s position on this ground is internally inconsistent.  On the one hand, he was highly critical of Mr Lo’s competence and integrity in the 3-10-2016 Letter, attributing to him many of the deficiencies identified by the reviewer.  On the other hand, he now argues that Mr Lo was a competent professional staff member of the Practice.  

39.On the materials before it, the Disciplinary Committee was justified to take the view that the delegation to the Service Company, rather than the supposed competence of any individual assigned to so the work, was the root cause of the quality control failures.  Its conclusion that the Practice lacked effective procedures for proper staff assignment was well supported by the evidence.  Ground 1.2 is without merit. 

H5.  Ground 1.3 – 1^st Complaint (engagement performance)

40.Mr Chan put forward two main arguments under this ground.  The first is that the Practice had a quality control manual (“QCM”) and the reviewer did not identify any deficiencies in it.  This argument is misplaced.  As pointed out by the Complainant and accepted by Mr Chan, the QCM was related to file assembly.  That aside, the thrust of the complaint and the Disciplinary Committee’s finding regarding engagement performance is the absence of effective policies and procedures to ensure compliance with relevant auditing standards and a lack of proper supervision to ensure there was sufficient evidential basis for the opinion expressed in the auditor’s reports.  The fact that the Practice had a QCM is therefore beside the point.  What matters is whether the procedures in the manual, assuming they are relevant to quality of engagement performance, were effectively implemented and duly observed.  To illustrate the point, the 2016 Reviewer’s Report found, in the context of file assembly, that although the QCM was updated subsequent to the 2014 practice review, the procedures in the QCM were not implemented with many important accounting documents not being retained in the audit files and no one had been designated to be responsible for file management.[52]  This highlights the point that mere existence of the QCM is not the same as having in place effective policies and procedures to ensure compliance with the auditing standards. The Disciplinary Committee’s finding that the Practice lacked proper supervision and review was based on the documented failures to have in place the required procedures and had nothing to do with the merits or otherwise of the QCM.

41.Mr Chan’s second main argument is that he had not admitted there were deficiencies in the four specified client audits, namely (a) inadequate audit work on significant components in group audit engagement of Client ETD; (b) insufficient procedures on the inventories, trade and other receivables and trade and bills payable accounts in respect of Client LCC; and (c) lack of documentation regarding review of audit work for Client RCI and Client SFI.  However, in the 3-10-2016 Letter he had accepted that “(1) to (6) findings and comments are largely correct, and (5) is under investigation by the [Practice].”  This is a reference to the six findings of deficiencies in the area of engagement performance in the 2016 Reviewer’s Report.  The first four findings related to the four specified client audits.  The remaining two findings were about the creation or reproduction of audit working papers of seven other engagements for the purpose of the practice review, and insufficient audit work on material accounts of the remaining 11 engagements. Evidently, Mr Chan had admitted to the findings of deficiencies in the 22 spot checked engagements as identified by the reviewer. 

42.Mr Chan sought to explain in his Reply Submissions (at §9) that the 3-10-2016 Letter only admitted that the reviewer had made the findings and did not preclude him from putting forward his “defence on the cause of the findings”, and his admission “was only about past findings, which had been remedied  by measures the Practice had taken.”  We have difficulty following the argument.  That aside, the Disciplinary Committee’s decision did not rest solely on Mr Chan’s admissions.  It had taken into account his explanations as to the circumstances giving rise to the deficiencies.  Among other things, the Disciplinary Committee was critical of his explanation that the engaging partners relied heavily on Mr Lo to monitor engagements and only performed rough reviews before issuing audit reports.[53]  This explanation, which Mr Chan has not disputed, is demonstrative of a failure to establish adequate policies for engagement performance as required by paragraph 32 of HKSQC 1.  The Disciplinary Committee was entitled to conclude on the facts and evidence that the Practice lacked supervision and proper review on the audit engagements.  Mr Chan has failed to show that the Disciplinary Committee had misread the evidence or was plainly wrong in its conclusion.  Ground 1.3 has no merit. 

H6.  Ground 1.4 – 1^st Complaint (file assembly)

43.Mr Chan’s first argument under this ground is that the findings about file assembly in the 2016 Reviewer’s Report were too generalised and lacking in particulars, such that he was not able to properly defend the case. He complains that the reviewer did not explain which audit engagements out of the 25 selected reviews (including 3 initial reviews on Client G, Client B and Client A and 22 spot checked engagements) fell short of the 60-day file assembly policy under the Practice’s updated QCM.

44.We do not accept this argument.  In the first place, this was not raised before the Disciplinary Committee.  It is not open to Mr Chan to raise on appeal a new point that could have been, but was not, taken in the disciplinary proceedings.  

45.In any event, the argument is flawed.  In complaining that the 2016 Reviewer’s Report lacked particularity, Mr Chan has overlooked that the Complaint Letter has set out the factual basis of the complaint about file assembly.  At §4.20, it was stated that: “During the follow up visit, the Reviewer noted that certain audit working papers of the engagements reviewed on the spot, including 7 spot checked engagements, were not originally included in the audit files but provided to the Reviewer in response to the Reviewer’s requests during the practice review.  It indicated that the Practice did not complete the assembly of final engagement files on a timely basis after the issuance of the auditor’s reports, in accordance with paragraphs 45 and A54 of HKSQC 1.”  Clearly, Mr Chan had been made aware of the particulars underlying the complaint and was in a position to deal with the case against him.

46.Further, the 3-10-2016 Letter stated that the Practice agreed to the findings of deficiency in respect of file assembly, and went on to say that Mr Lo had been reminded to make improvement, to strictly implement the QCM and to store and handle the audit files after the audit reviews.  This shows that Mr Chan had no problem understanding the basis of the reviewer’s criticism and findings on file assembly, and was further able to respond to them.

47.Mr Chan’s second argument under this ground is that the Disciplinary Committee erroneously relied on a finding about seven spot checked engagements that did not appear in the 2016 Reviewer’s Report[54].  This argument confuses the reviewer’s findings with the formal complaint and the case against him.  The 2016 Reviewer’s Report was only part of the materials before the Disciplinary Committee to support the complaints laid against him.  As noted above, the basis of this aspect of the 1^st Complaint was set out in the Complaint Letter (at §§4.18 to 4.22), which specifically referenced the seven spot checked engagements and stated that the audit working papers were not included in the audit files but were produced upon the Reviewer’s request during the practice review.  Mr Chan was given the opportunity to, and he did respond to, the Complaint Letter.  In his letter dated 19 September 2017, he took note of the points made in the Complaint Letter and stated that the Practice had taken steps to address them, such as placing audit document files in separate cabins.[55]

48.The Disciplinary Committee was entitled, based on the materials before it and Mr Chan’s admissions, to find that the Practice failed to comply with paragraphs 45 and A54 of HKSQC 1, which require the timely assembly of final engagement files, which was ordinarily within 60 days after the issuance of the auditor’s reports.  Ground 1.4 is without merit.  

H7.  Ground 2 – 2^nd Complaint (Client G)

49.Mr Chan challenges the correctness of the Disciplinary Committee’s decision on the 2^nd Complaint on two bases, namely (1) the Practice had been the auditor of Client G since 2007 and was not conducting a first-year audit; and (2) the working papers in respect of Client G show that audit procedures on inventory (stock-taking, cut-off procedure and stock valuation) had been duly performed.

50.In respect of the first challenge, the Complainant accepted in its Reply to Mr Chan’s Opening (at §17) that it was not in a position to rebut Mr Chan’s case that the Practice was first appointed as Client G’s auditor in 2007.  Mr Lau for the Complainant accordingly submits in this appeal that the Complainant had abandoned its original case that the financial statement of Client G ended 31 December 2014 was the first audit.  Mr Lau further submits that the Disciplinary Committee must have this in mind when considering the 2^nd Complaint.  We do not feel able to accept that that this is surely the case.  In the Decision (at §26(a)) when setting out the facts and circumstances in support of the 2^nd and 3^rd Complaints, the first deficiency identified in the audit working papers of Client G was about the opening balances:

“Opening balances – This was the first year audit by the Practice. The working papers did not show any audit work done on the opening balances in accordance with”

The Decision made no reference to Mr Chan’s case that the Practice had since 2007 been Client G’s auditor or the Complainant’s concession that it was not in a position to dispute this.  Neither did it make a finding on whether this was Client G’s first audit.  In the circumstances, we cannot be sure that the Disciplinary Committee had borne in mind or taken the view that the Complainant had abandoned this factual allegation and/or it had disregarded this allegation. 

51.In this connection, Mr Chan has in this appeal adduced new evidence of two letters dated 3 and 5 December 2007 exchanged between D.C. (CPA) Limited and Client G’s former auditor to support his case that the Practice was appointed as Client G’s auditor in 2007.  We agree with Mr Lau that these letters only show that in December 2007 D.C. (CPA) Limited was minded to accept the appointment to be Client G’s auditor.  Mr Chan argues that D.C. (CPA) Limited and the Practice are under the same group management and had the same signing partners at the material time.  Even if this is the case (on which there is no evidence before us), D.C. (CPA) Limited, being a limited company, and the Practice, which is a partnership, are separate legal entities.  The two letters do not evidence the appointment of the Practice as Client G’s auditor in 2007.  

52.Mr Chan also seeks to argue that there is no requirement to check open balances between practices under the same group, citing the definition of “predecessor auditor” in HKSA 510[56].  This is an impermissible argument as it is never Mr Chan’s case before the Disciplinary Committee or his grounds of appeal in this appeal that audit work on the opening balances in the 2014 financial statement of Client G was not required because the Practice was taking over the audit work from an audit practice belonging to the same group of companies or practices and/or the definition of “predecessor auditor” in HKSA 510 does not apply.

53.In our view, even if the Disciplinary Committee had made a factual error with regard to whether Client G’s 2014 financial statement was a first-year audit, it would only impact on the finding of lack of audit work in respect of the opening balances.  It would not adversely impact on the correctness of the Disciplinary Committee’s conclusion that the 2^nd Complaint was proved.  This is because the 2^nd Complaint concerns a breach of paragraph 6 of HKSA 500, which requires the auditor to design and perform audit procedures that are appropriate in the circumstances for the purpose of obtaining sufficient appropriate audit evidence.  The complaint was premised on several deficiencies, of which the failure to perform audit work on the opening balances was only one.  There were other deficiencies in the audit work performed on the revenue, costs of sales and inventory.  While Mr Chan is challenging the findings on the audit work on the inventory, which will be dealt with below, he has not challenged the finding that there was no audit work relating to the revenue and costs of sales accounts to assess the validity and accuracy of the transactions. 

54.Turning to the challenge to the finding on the inventory of Client G, Mr Chan’s defence before the Disciplinary Committee was that, although the inventory count took place on 5 January 2015 (which was five days after the year-end of 31 December 2014) there was no inventory movement in the intervening period, and he adopted a “roll back” method to verify the inventories stock count and adopted the balance as at 2 January 2015[57].  Mr Chan’s position on appeal, as appeared by his Skeleton Submission (at §27), is that audit work had in fact been carried out to test the transactions in the intervening period and to assess the underlying fair values of the inventories, relying on 10 pages of the working papers of Client G (“Client G Working Papers”)[58]. 

55.The Complainant points out that Client G Working Papers were already included in the core bundle before the Disciplinary Committee, which is why they are not part of the new evidence admitted in this appeal.  There is thus no basis to say that the Disciplinary Committee was not aware of, or had ignored, the documents.  The Complainant also submits that it is not open to Mr Chan to complain that the Disciplinary Committee failed to give weight to Client G Working Papers when he made no mention of them in his Case, Supplemental Case or Opening.[59]  Mr Chan does not dispute all these.  He only says that the documents had been submitted during the practice review stage.[60] 

56.We agree with the complainant’s submissions. Further, the critical issue is whether Client G Working Papers support Mr Chan’s challenge that the Disciplinary Committee was plainly wrong in finding there was no audit work to test the transactions in the period between the year-end date and the inventory count date and to assess the underlying fair values of the inventories, and no year-end cut-off procedures or fair value assessments were performed.  Mr Chan has not explained how Client G Working Papers relate to his challenge, let alone support his affirmative stance that he had tested the inventory transactions in the intervening period, conducted year-end cutoff procedures, and assessed the underlying fair values of the inventories.  We are unable to discern from the documents how and in what aspect they would have supported the audit procedures that were said to have been carried out.  Moreover, we find it difficult to understand why Mr Chan would only put up a bare denial in the disciplinary proceedings[61]  and did not, as he now seeks to do, assert that the required audit procedures had been done and this was borne out by Client G Working Papers.  

57.In summary, we do not accept the Disciplinary Committee had misread the evidence or erred in finding there was no evidence in the working papers to show proper stocktake instructions were given and/or stock movement controls were in place.  The challenge to the correctness of the decision on the 2^nd Complaint is not made out.  Ground 2 fails.  

H8. Ground 3 – 3^rd Complaint (Client A)

58.Before the Disciplinary Committee, Mr Chan’s defence to the 3^rd Complaint was that Client A was a small-scale company and it was difficult in practice to fully adopt the required audit standards.[62]  This was repeated in his Skeleton Argument (at §32).  The argument is untenable.  The fact that Client A is a small-scale company does not justify non-conformity of professional accounting standards.  As this Court held in HKICPA v Cheung Yiu Hung [2018] HKCA 463 at §34[63]:

“… whilst a failure to observe professional standards may be made more egregious when a public company is involved, it cannot be a reason for letting professional standards slip that an accountant’s firm was a small one or his clients were small companies. An accountant is accorded the privilege of practice by virtue of membership of his professional body. For that privilege, he has to comply with its standards, whether or not he considers them to be too demanding for him, and whether his firm is big or small, and irrespective of the status of his clients.”

59.Mr Chan slightly modified his position in his Reply Submissions (at §16), arguing that he is not saying that a lower standard of care and attention should be adopted, but that a different audit procedure could be adopted because of the small business scale of Client A.  It was said that this was an approach endorsed by the Institute and supported by two documents about audit procedures for small entity that were downloaded from the Institute’s website.  The first document is an Exposure Draft to invite comments on proposed amendments to International Auditing Practice Statement (“IAPS”) 1005 The Special Considerations in the Audit of Small Entities, which was published in March 2003 by the International Auditing and Assurance Standards Board.  The second document is HKSA 300 Planning an Audit of Financial Statements issued by the Institute.  

60.Mr Chan’s reliance on these documents is inapt. First, it is not altogether clear whether any, and if so which, part of the proposed amendments to IAPS 1005 has been adopted and is in force.  Second, paragraph 1 of IAPS 1005 stated in unambiguous terms that the basic principles and essential procedures together with related guidance contained in International Standards on Auditing (ISAs) apply to the audit of any entity, “irrespective of its size, its legal form, ownership or management structure, or the nature of its activities”, IAPS 1005 does not “establish any exemptions from the requirements of ISAs”, and “all audits of small entities are to be conducted in accordance with ISAs”.  This runs counter to Mr Chan’s argument that a different audit procedure could be adopted for Client A due to its small scale.  Third, the 3^rd Complaint is about failure to comply with paragraph 6 of HKSA 500, which requires an auditor to design and/or perform audit procedures appropriate for obtaining sufficient appropriate audit evidence in relation to the audit of financial statement.  Insofar as Mr Chan seeks to say that a different audit procedure is applicable to Client A, it is incumbent upon him to identify and specify the applicable audit procedure.  This he has not done, whether by reference to IAPS 1005 and its proposed amendments and/or HKSA 300 or at all. 

61.In any event, as the Disciplinary Committee pointed out at §25 of the Decision, Client A’s financial statement for the year ended 31 March 2015 (which gave rise to the 3^rd Complaint) expressly stated that the Practice conducted the audit in accordance with the HKSA and with reference to Practice Note 900 (Revised) Audit of Financial Statements Prepared in Accordance with the Small and Medium-sized Entity Financial Reporting Standard (“SME-FRS”) issued by the Institute.  Paragraph 9 provides that HKSA is applicable to the audit of financial statements prepared in accordance with the revised SME-FRS. Mr Chan had plainly accepted that HKSA applied to the audit work of Client A.  It is not open to him to say that some other audit standards apply or a different audit procedure could be adopted.

62.Mr Chan also complains that the Disciplinary Committee failed to consider all the evidence regarding Client A.  He relies on the working papers in respect of Client A (“Client A Working Papers”) which are admitted as new evidence in this appeal.  He contends that they evidence that (a) control procedure had been taken to convert substantive audit procedure for income and costs of sale accounts to ascertain the validity and accuracy of the transactions;[64] (b) audit procedure was performed for trade receivables which was in an insignificant amount of HK$66,260;[65] and (c) there was assessment of Client A’s materiality of HK$40,000[66]. 

63.This line of argument is in stark contrast to Mr Chan’s position before the Disciplinary Committee.  As noted above, his defence was that Client A was a small-scale company and it was difficult in practice to fully adopt the relevant audit standards.  He also said that the Practice’s associate was client A’s bookkeeper, the Practice had sufficient monthly information of Client A’s updated sales and costs of services and its general ledger for sales and costs of services from 1 April to 31 July 2015 such that cut-off testing was not necessary, and the Practice also had sufficient monthly information of Client A’s trade receivables status.  Although Mr Chan’s Opening asserted that “the Practice … had adopted the appropriate measures to perform the audit work”, it did not elaborate on the measures used.  While the general ledgers of Client A for the years ended 31 March 2014 and 31 March 2015 were included in the Supplemental Case[67], Client A Working Papers were not included in Mr Chan’s Case or Supplemental Case[68].

64.In light of the position adopted by Mr Chan in the disciplinary proceedings and given that he did not put Client A Working Papers in evidence before the Disciplinary Committee, it is not open to him to complain on appeal that the Disciplinary Committee did not consider the working papers.  This is particularly so when one has regard to the fact that the 3^rd Complaint is based on recurring deficiencies such that Mr Chan must be well aware of the case he had to meet.  The 2015 Reviewer’s Report found no audit work was carried out on the significant balances in Client A’s financial statement for the year ended 31 March 2013, namely trade receivables, revenue, cost of services rendered and expenses.  The 2016 Reviewer’s Report identified recurring deficiencies in respect of the 2015 financial statement, namely no substantive audit work was performed on service income and costs of service rendered, and no audit work was performed on trade receivables.  It must therefore be clear to Mr Chan that the reviewer’s concern was the lack of audit work on the material accounts of Client A.  He would also be well aware that the crux of the 3^rd Complaint was that no appropriate audit procedures were performed for the purpose of obtaining sufficient and appropriate audit evidence in relation to the audit of the 2015 financial statement.  If his defence was that the reviewer was wrong and there was evidence of audit work on the service income and costs of service and trade receivables in Client A Working Papers, it was for him to put forward the working papers and identify the evidence to the Disciplinary Committee.  We find it difficult to understand why he did not include Client A Working Papers in the core bundle before the Disciplinary Committee.  Mr Chan said in his Skeleton Argument (at §32) that the working papers were submitted to the reviewer during the 2016 practice review.  That being the case, it would be even more difficult to understand why he did not include them in his submissions to the Disciplinary Committee.  It would not have escaped Mr Chan’s attention that this Court, when allowing his appeal against the decisions of the 1^st Disciplinary Committee, had already made the point that  “a Respondent’s Case ought to contain all the submissions on the material aspects of the case together with all the documentary evidence relied upon” (at §37).

65.Mr Chan argues in his reply submissions that since client A Working Papers had been submitted to the reviewer, the Disciplinary Committee should consider them when deliberating on the 3^rd Complaint.  We do not agree.  The Disciplinary Committee cannot be expected to look beyond the materials and evidence that were placed before it, or to search for evidence of audit work in view of Mr Chan’s defence in the disciplinary proceedings.

66.In any event, it is not clear to us how Client A Working Papers go to show that the Disciplinary Committee was plainly wrong in finding (a) no substantive audit procedures were carried out on the service income and costs of sales accounts to ascertain the validity and accuracy of the transactions; and (b) no audit procedures were carried out to ascertain the existence and valuation of the balance as at the year-end date.  The documents are incomplete and do not evidence that sufficient appropriate audit evidence was obtained for the service income, costs of services and trade receivable accounts.  For instance, the one-page “File Content”[69] which Mr Chan relies on to show that control procedure was conducted on the cost of sales account only lists four sub-headings under the heading of “Control” in the “Planning and Control” section, and gives no other information.  In the case of the document entitled “Debtors, Deposits and Prepayments”[70], all the audit procedures for trade debtors listed in it (including cut-off test) were stated to be not applicable.  It hardly supports Mr Chan’s submissions that audit procedure was performed for trade receivables.  As for the document entitled “Material Risk Assessment”[71], it addresses audit materiality thresholds and does not evidence the performance of any substantive audit work.  

67.For the above reasons, Mr Chan has not shown that the Disciplinary Committee erred in concluding that the 3^rd Complaint was proved.  Ground 3 fails. 

H9.  Ground 4 – 4^th Complaint  

68.Mr Chan argues that if the 1^st, 2^nd and 3^rd Complaints are not established, the 4^th Complaint should fall away.  Given our rejection of his grounds of appeal in relation to the 1^st to 3^rd Complaints, this ground falls away. 

H10. Ground 5 - Procedural irregularity 

69.Mr Chan’s complaint under this ground concerns the Complainant’s Reply Submissions dated 29 July 2022[72], which he says was not properly served on him because it was sent to a company email address rather than his personal email and by ordinary post instead of registered post, and he was consequently deprived of his right to make a reply under rule 21 of the Disciplinary Committee Proceedings Rules (“DCPR”)[73].

70.In the first place, this is a new ground not contained in the Notice of Appeal.  It is not open to Mr Chan to raise a new ground of appeal in the Skeleton Argument.  Mr Chan says in his reply submissions that it was due to lack of legal knowledge that he did not include procedural irregularity as a ground of appeal in the Notice of Appeal.  Order 59 rule 3(3) of the Rules of High Court, Cap. 4A (which applies to this appeal[74]) provides that an appellant is not entitled on the hearing of an appeal to rely on any grounds of appeal not specified in the notice of appeal. Although Mr Chan is not legally represented, that does not afford a basis for departing from the requirement of the Rules.  We further take note that the Decision, when setting out the history of the proceedings, recorded that the Complainant and Mr Chan each made a response on 29 July 2022 to the other side’s opening submissions. Mr Chan acknowledges in his reply submissions (at §21) that he had noticed this when reading the Decision and explains that he did not raise objection with the Disciplinary Committee at the time because he did not think it would be entertained.  Given that he has known of the document since 2023 and he feels aggrieved by the manner of service, irrespective of whether he is legally represented, there is no justification for not putting forward this ground in the Notice of Appeal.  We will not allow Mr Chan to argue Ground 5 in this appeal. 

71.In any event, this ground is flawed as a matter of procedure and substance.  First, as evidenced by the complainant’s letter dated 11 April 2024, the Complainant’s Reply Submissions was sent to Mr Chan by post and by email on 29 July 2022.  The document sent by post was not returned to the Complainant.  Mr Chan does not dispute that the address to which the document was sent was his office address and also his address registered with the Institute.  He, however, says that he did not receive it and complains that it was not sent by registered post or delivered by hand.  He, however, has not pointed to any rules or regulations requiring the document to be sent by registered post or personal delivery.  In our view, the Complainant acted reasonably and there is no impropriety in sending the document by ordinary post to Mr Chan’s office address registered with the Institute.  We note in this regard that under rule 38(1)(b) of DCPR, this is a permissible method of sending documents required to be sent under the DCPR. 

72.Second, the Complainant has pointed out that the company email address to which the document was sent was included in Mr Chan’s letterhead at the material time.  Mr Chan does not dispute this but contends that the other communications from the Complainant were sent to another email address and the Complainant has not accounted for the change. Importantly, it is not Mr Chan’s case that the document was not delivered to the company email account.  In his letter dated 4 March 2024 disputing service of the document, Mr Chan said he “just find the email” and located it from the junk mail folder of the company email account.[75]  The upshot of all these is that the document was delivered  to an effective email account which Mr Chan had represented was one to which communications could be sent to him.  There is, in short, no basis for saying the service was improper or there was procedural irregularity. 

73.Third, the reliance on rule 21 of  DCPR is misplaced.  Part V of DCPR (of which rule 21 forms part) concerns the filing of the parties’ Cases and Replies before the checklist procedure.  Rules 22 and 23 of DCPR further provide that the parties’ Cases and Replies shall constitute the evidence and submissions of the parties in the disciplinary proceedings and no further written submissions or documentary evidence shall be admitted without the leave of the Disciplinary Committee or its Chairman. In the present case, the checklist procedure was completed in March 2022, and the Disciplinary Committee had by directions made on 6 April 2022 given leave to the parties to file written opening submissions.  Rule 21 is therefore not engaged, and the Disciplinary Committee’s directions did not entail a right by either party to reply to the other side’s reply to the opening.  

74.Fourth, there is no substance in the complaint of prejudice.  Mr Chan has adduced as new evidence in this appeal a proposed reply submission to the Complainant’s Rely Submission[76]. It made the points that (a) the Practice was in an unusual state during the 2016 follow-up review as it was undergoing office relocation; (b) Client G had been the Practice’s client since 2007; (c) Client G Working Papers showed that Client G’s materiality came from 1% of its turnover; (d) Client G Working Papers showed that the audit staff attended the stock-taking on 5 January 2014; (e) Client A’s materiality figure of HK$40,000 came from the working papers; and (f) the 4^th Complaint was not established because of the strong evidence to rebut the allegations.  These points are either repetitions of what was already in Mr Chan’s previous submissions to the Disciplinary Committee (Points (a) and (b) and (f)) or in the complainant’s Reply Submission (Point (e) was made in footnote 14), or had been considered and noted by the Disciplinary Committee (Points (d)).  All of them have no material bearing on the findings and conclusions made by the Disciplinary Committee.  

75.For the above reasons, there is no merit in Ground 5.

H11.  Ground 6 – Sanctions and costs order

76.Under this ground, Mr Chan challenges both the sanctions imposed and also the costs order.  The challenge to sanction relates to §9 of the Sanctions Decision which read:

“The complaints were raised [sic] based on the findings of a practice review carried out on the Practice and all of the complaints against the Respondent were proved. The Practice had previously been subjected to an initial practice review and the Respondent was aware of the deficiencies then identified. The Respondent not only had failed to address the deficiencies, but had tried to absolve his responsibility as the managing and engagement partner of the [Practice] by placing the blame on a former audit manager, who was not even an employee of the Practice. The multiple breaches by the Respondent are serious, his lack of regard to take responsibility for the Practice’s audit quality and lack of remorse show his disregard of his obligation to comply with professional standards of the audit profession, and are aggravating factors that warrant serious sanctions against him as set out below in paragraphs 13(2) and 13(3) below.”

77.Mr Chan argues that the Disciplinary Committee was wrong to consider lack of remorse as an aggravating factor, to find that he tried to shift the blame to Mr Lo, and to say that Mr Lo was not an employee of the Practice.  He also submits that the Disciplinary Committee wrongfully adopted a subjective and arbitrary approach in assessing his remorse, equated the weakness of his defence with lack of remorse, and disregarded his legal right to defend the disciplinary proceedings.

78.These arguments have no merits.  For the reasons discussed under Grounds 1.1 and 1.2 above, the argument that the Disciplinary Committee was wrong to find Mr Lo was not an employee of the Practice is untenable.  It is also evident from the submissions made by Mr Chan in the disciplinary proceedings that he repeatedly attributed the deficiencies to Mr Lo, who was employed by the Service Company. The Disciplinary Committee was entitled to view this as an attempt to shift the blame and a failure to accept accountability for his responsibility as managing and engagement partner.  We do not agree that the Disciplinary Committee’s finding of lack of remorse was arbitrary or tied to the weakness of the defence.  It would appear to us from reading §9 of the Sanctions Decision that it was the shifting of blame and deflection of responsibility that led the Disciplinary Committee to take the view that there was lack of remorse.  In our view, the Disciplinary Committee was justified to regard this as an aggravating factor and this did not infringe Mr Chan’s right to contest the disciplinary proceedings.  

79.Mr Chan also contends that the sanctions imposed are disproportionate, but has not elaborated on the point.  It is well established that so long as the sanctions imposed fall within the reasonable range of options, the court will not intervene.  In the present case, the matters taken into account by the Disciplinary Committee in §9 of the Sanctions Decision are relevant considerations.  It has not been demonstrated that the sanctions of reprimand and prohibition on the issuance of a practising certificate fall outside the reasonable range of options available to the Disciplinary Committee.  We also note that the prohibition was ordered to run concurrently with an existing 12-month prohibition[77]. There is no basis for this Court to interfere with the sanctions imposed.

80.As to the challenge to the costs order, Mr Chan’s argument is that he should not be liable for the costs of the disciplinary proceedings prior to the re-hearing (HK$ 62,207) because this Court found the 1^st Disciplinary Committee was wrong to proceed with the 2018 Hearing in his absence.  The argument was rejected by the Disciplinary Committee for the reasons in §13 of the Sanctions Decision:

“The Disciplinary Committee is of the view that whether the Respondent is present or absent from the 2019 [sic] hearing did not affect the costs and expenses that had already been incurred in the course of the disciplinary proceedings and in the preparation of the hearing, therefore, the Respondent should pay and the Complainant should be allowed the full costs.”

81.When allowing Mr Chan’s previous appeal, this Court directed that the costs of the disciplinary proceedings prior to the order of re-hearing  be dealt with by the Disciplinary Committee. Determination of costs is an exercise of discretion, with which we will not interfere unless it can be demonstrated that the Disciplinary Committee has erred in principle, gone outside the generous ambit within which a reasonable disagreement is possible, considered irrelevant matters or ignored relevant matters.  It is not for us to consider the matter afresh and to make our own discretionary decision. 

82.The costs in dispute were costs incurred since the commencement of the disciplinary proceedings up to the 1^st Disciplinary Committee’s decision on sanctions.  They comprise the costs and charges of (1) the preparation of the complaint documents, relevant documents and correspondences involving Mr Chan, the Disciplinary Committee Convenor and the Clerk to the Disciplinary Committee; (2) the 2018 Hearing; (3) the preparation of submissions on sanction for consideration by the 1^st Disciplinary Committee; (4) photocopying; and (5) the Clerk to the Disciplinary Committee.  

83.In respect of (1), (4) and (5), the Disciplinary Committee was correct in its view that they were costs and expenses for work incurred in the course of the disciplinary proceedings and for the preparation of the 2018 Hearing.  As provided in paragraph 72(1) of the Guidelines for the Chairman and the Committee, costs generally follow the event.  Mr Chan having failed in contesting the disciplinary proceedings, the Disciplinary Committee was entitled to award to the Complainant the costs for the work done in the disciplinary proceedings. It is immaterial whether the 1^st Disciplinary Committee should have adjourned the 2018 Hearing because these costs covered work that were necessary or incidental to the disciplinary proceedings that had already been done by the time of the 2018 Hearing.  It is thus within the Disciplinary Committee’s discretion to order Mr Chan to bear these costs. 

84.As for (2) and (3), had the 2018 Hearing been adjourned due to Mr Chan’s inability to attend, it would be within the discretion of the 1^stdisciplinary committee and the Disciplinary Committee to order Mr Chan to pay the costs wasted and thrown away by the adjournment.  This Court when allowing the previous appeal has pointed out that the appeal (and in turn the order of re-hearing) was largely the result of the unsatisfactory way in which Mr Chan conducted his case in the disciplinary proceedings and made his adjournment application.[78]  Taking these matters in the round, the Disciplinary Committee was well justified to make the costs order as it did. There is no proper basis for this Court to interfere with the discretion of the Disciplinary Committee.

H12. Conclusion

85.As none of the grounds raised by Mr. Chan affords a basis for this Court to interfere with the Disciplinary Committee’s finding of liability and its decision on sanctions and costs, we dismiss the appeal.

H13. Costs of the appeal

86.The Complainant asks, and we agree, that costs should follow the event.  We are further inclined to think it is appropriate to order that the Complainant’s costs be paid on an indemnity basis, having regard to the total lack of merits of the appeal and the fact that the Institute is a public body defending this appeal in the general interests of the accountancy profession with funds contributed by its members: see Lie Han Ji v The Registrar of the Hong Kong Institute of the Certified Public Accountants (unreported) CACV 265/2009, 24 April 2012, at §15.  However, as Mr Chan has not made submissions on costs, we will make a costs order nisi that he pays the Complainant’s costs of this appeal on an indemnity basis, to be taxed if not agreed. 

87.Any party who wishes to vary the costs order nisi shall apply in writing within 14 days, setting out the grounds in support of the application. The other party may respond in writing within 14 days thereafter.  The Court will deal with the application on paper without an oral hearing.  The costs order nisi shall become absolute if no application to vary is made within the stipulated time.

Mr. Lau Ka Kin, instructed by MinterEllison LLP, for the Complainant

The Respondent, acting in person