The first full cycle of practice
reviews for auditors of listed clients in Hong Kong revealed
satisfactory results at the Big Four and large firms, but smaller
practices need to improve their quality control and compliance with
professional standards.

The reviews were conducted by the
Hong Kong Institute of Certified Public Accountant’s quality
assurance department, which looked at 51 firms between 2007 and
2009.

About 90 percent of Hong Kong
listed entities are audited by 15 practices – the Big Four plus 11
large firms that each audit 11 or more Hong Kong listed
clients.

The remaining 10 percent of listed
entities are audited by 36 smaller practices, most of which have
one or two listed clients.

The Big Four’s audit practice
reviews were all directly closed – reflecting the reviewers’
satisfaction with the strength of the practices’ procedures.

Of the other 11 large practices,
seven reviews were closed directly, two were closed after follow up
action and two have follow-up actions pending.

“In general, the department is
satisfied that Big Four and larger practices have the commitment
and resources to implement effective quality control and to address
all matters raised by the practice review teams,” the HKICPA
wrote.

 

More effort
needed

This was in stark contrast to the
review of the 36 smaller practices, where just six were closed
directly. Eight have been closed after follow-up action and 22 have
follow-up action pending.

“As a general observation, the
department considers that smaller practices need to devote more
effort and resources to the effectiveness of their quality control
and compliance with professional standards, and to address the
particular challenges of listed company audits,” the HKICPA
said.

The HKICPA said smaller practices
needed to establish policies and procedures to determine whether
they have the time and resources to perform audits of listed
clients before accepting work. Some practices also need to improve
their independence from clients.

To date, no case has been pursued for disciplinary action.