Home' A Plus Magazine : November 2013 Contents 22 November 2013
Institute's preferred outcome
Responsibility of Institute
Responsibility of independent
No remit for taking disciplinary
action against Hong Kong-listed
Responsible for taking disciplinary
action against Hong Kong-listed
company auditors arising from
inspection and investigation
Three options for a disciplinary
(a) Direct decision making and
sanctioning by the independent
oversight body subject to appeal
to an independent tribunal;
(b) Cases arising from inspection
or investigation sent to a fully
committee for decision and
(c) Cases arising from inspection or
investigation sent to a disciplinary
committee chaired by a senior
executive of the independent
oversight body with independent
members for decision and
The range of sanctions available
includes reprimand, suspension
or withdrawal of registration and
monetary penalties. Monetary
penalties will be capped at the
greater of HK$10 million or three
times the profit made or loss avoided
in carrying out the audit.
We agree in principle with
the framework proposal. The
independent oversight body will need
to have the ability to take effective
action to address misconduct.
We support option (b). Those
responsible for investigation and
inspection should not also be
responsible for sanctioning.
We have also proposed a fourth
option allowing a matter to be
resolved by the independent oversight
body offering, and the auditor
accepting a sanction. If the auditor
declines the offer the case should be
taken to an independent disciplinary
We agree with the proposed range
of sanctions with the exception
of monetary penalties. They are
a punitive measure rather than
remedial or for public protection. The
reputational damage, and potential
civil action, following any regulatory
sanction will far exceed the pain
of a fine. If monetary penalties are
included in the final framework we
believe that three times profit or loss
is not an appropriate measure and
that HK$10 million is excessive.
Key questions to guide our response:
8. Do you agree with our view that there should be a clear separation of responsibility between inspection and
investigation and subsequent disciplinary action?
9. Which of the three options for the structure of enforcement/disciplinary proceedings that are included in the draft
framework do you support?
10. Do you agree with our proposal of a "fourth option" which allows for disciplinary action to be concluded, with the
consent of both parties, without proceeding to a formal disciplinary hearing?
11. Do you agree with our position that in principle monetary fines are not necessary as a punitive measure if the
independent oversight body has the power to suspend or withdraw registration which have additional potentially
serious consequences of reputational damage and civil action?
12. If monetary penalties are included in sanctions available to the independent oversight body, do you agree
that determining the level of penalty by a multiple of profit is inappropriate and that all penalties should be
proportionate and determined by a range of factors including a firm's financial resources?
13. What do you consider would be a reasonable amount for a cap to the level of monetary penalties?
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