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.