From left: Eugene Yeung, Convenor of Budget Proposals 2021-2022 Sub-Committee; Raymond Cheng, Institute President; and William Chan, Chair of the Taxation Faculty Executive Committee
The Hong Kong Institute of CPAs issued its tax policy and budget proposals for 2021-22 under the theme “Preparing for the recovery” this month. The Institute suggested a range of 21 different measures to prepare for the recovery, enhance public finance and taxation, help citizens and businesses to adapt to the “new normal” through more extensive digital transformation, as well as environmental measures to improve the local environment and citizens’ well-being.
The Institute estimates that the fiscal deficit for 2020-21 will reach HK$348 billion for the year, while fiscal reserves are expected to stand at HK$812 billion. “Hong Kong’s economy is facing various domestic and external challenges. Like many other jurisdictions, the near-total disruption to lives due to the COVID-19 pandemic and the related restrictions on travel, have had a significant impact on the economy, resulting in the high unemployment rate and budget deficit,” said Institute President Raymond Cheng. “Other challenges ranging from the outmoded tax system, the United States-China trade war, the need for faster digital transformation in light of the ‘new normal,’ and the pressure on public finances, indicate an urgent need for the government to respond.”
The unemployment rate for the three months ending December 2020 reached 6.6 percent, the highest in nearly 16 years. “More should be done to support employment and the economy now, through creating jobs in both the public and private sectors, and accelerating the scheduled infrastructure/ construction projects to create demand,” said Cheng. To help graduates enter the job market and ensure a sufficiently skilled workforce, the Institute also suggested the government provide salary subsidies to employers for hiring graduates and career transition assistance to eligible people.
As the COVID-19 pandemic has revealed the weaknesses of the existing tax system amid the economic turmoil, the Institute once again called for a holistic review of the Hong Kong tax system. “A review of the public finance revenue model has become even more pressing after developments in 2020,” said Eugene Yeung, Convenor of Budget Proposals 2021-22 Sub-Committee.
With respect to the importance of investing in technology and infrastructure, the Institute highlighted that some of Hong Kong’s small- and medium-sized enterprises (SMEs) may not be able to afford the cost of digital transformation and effective cybersecurity. “To help SMEs and the business community, the government should consider developing a public cloud infrastructure, upgrading the existing e-government services, and educating the public and SMEs about cybersecurity matters,” said William Chan, Chair of the Taxation Faculty Executive Committee. The Institute also recommended the government support disadvantaged families by subsidizing their Internet subscription plans.
The budget proposals are available on the Institute’s website. Read the summary of our recommendations here.
New committee appointments confirmed
The appointments to the new term of the Institute’s committees, panels and working groups to support the activities of the Council have been finalized. Members can learn about the various committees and their composition for this year on the Institute’s website. In addition, the Institute has established a new Task Force on Legal and Compliance for Accountants to consider challenges faced by members relating to certain legal and compliance matters, and to propose ways that the Institute can help members navigate them. Read more about the new committee here.
QP December 2020 examinations held successfully
The Institute successfully held the final module examinations of the current Qualification Programme (QP) on 28 and 29 December 2020 amid the COVID-19 pandemic. Together with the Final Examination held in November, the entire December 2020 session of the QP has been completed. Preparation for the first offering of the Professional Level of the new QP continues ahead of the June 2021 examination session. Details about the new QP can be found on the Institute’s website.
Research study on COVID-19 disclosures by listed companies available now
The Institute has published a new report on corporate disclosures in relation to the COVID-19 pandemic, undertaken alongside the Best Corporate Governance Awards. The report reviews how Hong Kong-listed companies with 31 March 2020 year-ends communicated the impact of COVID-19 in their annual reports and additional disclosures. It also makes recommendations for how companies should improve their disclosures. For more details, read this month’s How-to column here.
Institute launches events app survey
The Institute is conducting a survey of members who use the HKICPA Events app with the aim of identifying ways to improve it and create more value for users. App users will have received an invitation email, and a link can also be found in the app.
Minutes of the 48th AGM
The minutes of the Institute’s 48th annual general meeting (AGM) held on 10 December 2020 are now available for members to read. They can be found in the “Members’ area” of the Institute’s website.
Council meeting minutes
The abridged minutes from the November and December Council meeting are now available for members to read. They can be found in the “Members’ area” of the Institute’s website.
Resolution by Agreement
Chan Kam Fuk, CPA (practising) and Dominic K. F. Chan & Co.
Complaint: Failure or neglect to observe, maintain or otherwise apply Hong Kong Standard on Review Engagements 2400 (Revised) Engagements to Review Historical Financial Statements.
Chan was the sole proprietor of Dominic K. F. Chan & Co. The firm issued an unmodified review report on the interim financial statements of Summi (Group) Holdings Limited and its subsidiaries (collectively, group) for the six months ended 31 December 2018, noting material uncertainty about the group’s ability to continue as a going concern.
The group made significant payments for capital expenditures during the period. The payments depleted the group’s bank balances as at 31 December 2018. Most of the payments were for land improvement contracts and were incorrectly classified as “lease prepayments for orange plantations.”
The respondents’ working papers reflected: insufficient understanding of the group’s accounting system; insufficient assessment of the impact of the inappropriate classification; and inadequate procedures in relation to impairment assessments. The respondents’ review report also did not include an adequate explanation of management’s responsibility for the preparation of the interim financial statements.
Regulatory action: In lieu of further proceedings, the Council concluded the following action should resolve the complaint:
- The respondents acknowledge the facts of the case and areas of non-compliance with the relevant professional standard;
- The respondents be reprimanded; and
- The respondents jointly pay an administrative penalty of HK$50,000 and costs ofthe Institute of HK$15,000.
Kwok Kam Piu, CPA (practising)
Complaint: Failure or neglect to observe, maintain or otherwise apply Hong Kong Standard on Auditing (HKSA) 230 Audit Documentation; HKSA 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements; HKSA 500 Audit Evidence; HKSA 550 Related Parties; and the fundamental principle of professional competence and due care in sections 100.5(c) and 130.1 of the Code of Ethics for Professional Accountants.
Kwok issued an unmodified auditor’s report on a private company’s financial statements for the years ended 30 April 2017 and 30 April 2018. In carrying out the audits, Kwok failed to obtain sufficient appropriate evidence regarding the company’s balances with its directors and shareholders and on management fee expense. In addition, he did not perform adequate risk assessment on related party transactions, and he failed to identify management fees paid to a director- controlled entity as a related party transaction. Further, Kwok failed to prepare adequate documentation of audit procedures performed on a material amount of dividends paid. These audit deficiencies demonstrated Kwok’s failure to exercise adequate professional scepticism, maintain the required level of professional knowledge and skill, and act diligently and in accordance with applicable professional standards. Kwok admitted the complaints against him.
Decisions and reasons: The Disciplinary Committee reprimanded Kwok. In addition, Kwok was ordered to pay a penalty of HK$50,000 and costs of disciplinary proceedings of HK$116,962. When making its decision, the committee took into consideration the particulars of the breaches committed in this case, the parties’ submissions, and Kwok’s personal circumstances and conduct throughout the proceedings.
Details of the Resolution by Agreement and disciplinary finding are available at the Institute’s website.