The Hong Kong Institute of Certified Public Accountants (HKICPA) said EY Honk Kong fell short of complying with independence and ethics rules during its work as New China Hong Kong (NCHK) Group auditor almost two decades ago.
The HKICPA said EY Hong Kong failed or neglected to observe, maintain or otherwise apply the standard Statement 1.203 "Professional Ethics – Integrity, Objectivity and Independence".
The decision was in relation to the firm’s audit of the NCHK Group between 31 December 1995 and 31 December 1997, at which point NCHK went into voluntary liquidation, owing creditors HK$1.5bn.
The institute said the firm at the time lacked adequate review machinery which would have alerted it to the risk of the appearance of its independence being impaired.
Former senior EY partner and NCHK executive committee member and financial advisor Anthony Wu was also found guilty of professional misconduct.
In his capacity at NCHK, Wu was an authorised signatory to almost 13 bank accounts of the group company and had personal dealings involving considerable sums of money with the company’s subsidiaries who were also audit clients of EY.
The HKICPA said Wu should have ensured that he carried out his professional life in a manner that would not raise the spectre of the appearance of independence being impaired.
The HKICPA also found that former EY Hong Kong partner Catherine Yen failed to conduct herself in a way seen to be free of interest which might detract from her objectivity in her work on the in the same audit.
The institute has now filed submissions on sanctions and costs with the disciplinary committee, made up of two chartered accountants and three non-accountants.
Possible sanctions include a penalty of up to HK$500,000, a reprimand, the temporary or permanent removal from membership of HKICPA or the cancellation of a practising certificate.