Accounting society beats off legal challenge to investigative powers

PUBLISHED : Friday, 30 June, 2000, 12:00am
UPDATED : Friday, 30 June, 2000, 12:00am


The Hong Kong Society of Accountants (HKSA) has triumphed again in the latest challenge to its powers with a court ruling that bolsters its right to probe potential misconduct.

A judge has refused to strip the regulator of its power to crack down on suspected malpractice based on anonymous tip-offs and materials, a crucial element of the body's watchdog role.

The ruling reinforces the HKSA's investigation powers, the third time in less than four months the body has been forced to do so in the courts.

Attempts by Deloitte Touche Tohmatsu and Ernst & Young to quash decisions by the HKSA to probe controversial audits will return to the High Court this summer.

Both firms failed to convince the court that the HKSA was wrong in law by deciding to form investigative committees to scrutinise the audits of Guangnan (Holdings) and Cosco International Holdings.

A legal challenge was launched by accountant Peter Chan Po-fun earlier this month after the HKSA decided to probe an audit based on a mystery letter from an informer claiming to work for the Inland Revenue Department.

He sought permission from Mr Justice Michael Hartmann for a judicial review of the HKSA's decision, claiming the body had overstepped its powers.

Documents passed on to the HKSA by the anonymous tipster were illicitly copied, and secrecy provisions breached, Mr Chan said.

The HKSA should have been aware that accounts of a non-public company in the SAR were private documents, he said.

However, Mr Justice Hartmann refused to interfere with the HKSA decision.

If a complainant is not prepared to be identified or is unwilling to pursue the matter any further, the HKSA registrar can 'become prosecutor of the cause', he ruled.

The decision by the registrar to scrutinise the accounts and approach Mr Chan with his concerns 'cannot, in my opinion, begin to approach anything smacking of procedural impropriety or a breach of contemporary standards of natural justice', he continued.

Mr Justice Hartmann underlined the power of the HKSA to consider any potential breach of standards by way of informal, anonymous complaints.

It was obvious that the society had based its decision to investigate on the set of accounts, rather than the mysterious letter alone.

'From time to time, we do receive anonymous letters,' the HKSA's director of professional conduct, Raphael Ding Wai-chuen, said yesterday.

'We have been advised that it doesn't really matter who the complainant is, as long as what he says has some substance.' Mr Ding said the court ruling had been welcomed as an endorsement of the accounting society's attempts to stamp out misconduct.