In the unassuming surroundings of the 27th floor of Wu Chung House in Wan Chai yesterday, expensively assembled teams of lawyers finally got to grips with the complaint brought by the Hong Kong Institute of Certified Public Accountants (HKICPA) against Hospital Authority chairman Anthony Wu Ting-yuk and two other defendants. These include Ernst & Young, of which Wu was chairman until December 2005, and Catherine Yen Ka-shun, another senior figure at the accounting firm.
In what is the HKICPA's most high-profile case to date, the three legals teams were clearly visible, but conspicuous by their absence were the respondents, those accused of professional misconduct. The complaint relates to the collapse of New China Hong Kong Group (NCHK), which was founded in 1993 by a consortium of investors from Hong Kong, the mainland (including the Hong Kong and Macau Affairs Office) and Singapore.
The group entered voluntary liquidation in 1999 amid debts of HK$100 million. Wu was the financial adviser to NCHK. At the same time, he was managing partner of Ernst & Young's China business in 1996, before becoming deputy chairman of the firm in 1998 and chairman in 2000. During this period, Ernst & Young was auditor to NCHK. Various lawsuits followed the company's collapse, one of which was against Ernst & Young and Wu, which was settled out of court.
Senior counsel Peter Duncan acting for the HKICPA in outlining its case yesterday, said Wu breached the requirement of independence to an extent that amounted to professional misconduct. This arose in that Wu was on the management committee of NCHK and signed cheques while his company served as underwriter to the group. Ernst & Young received HK$1.2 million a year for Wu's presence on the executive committee. At the same time Wu also had financial dealings with subsidiary companies within the group that were involved in trading shares and futures contracts. He undertook deals for his personal finances and on behalf of clients. These transactions both for himself and clients amounted to millions of dollars, Duncan said. Some of these transactions were on behalf of himself and others on behalf of clients. If he wasn't guilty of professional conduct then "there was clearly a conflict of interest".
Ernst & Young, according to Duncan, failed to establish adequate review machinery to ensure that its perceived independence was not compromised. Yen, as the Ernst & Young partner responsible for the NCHK audit, had an obligation to ensure that the obligation of independence was complied with, he said. "She failed in those obligations," Duncan said. However, counsel for Ernst & Young and Yen, Roger Beresford, observed that in two of the three years in question the accounting firm had qualified the NCHK accounts in one year and disclaimed them in another. "In what sense could any rational shareholder accuse the auditor of not appearing to be independent." In addition, he noted that the events of the present hearing related to actions 20 years ago and that there were "inexcusable" delays by the investigative committee of the HKICPA, which took six years to decide whether there was a prima facie case of professional misconduct.
Under the circumstances, he said he supported Mark Strachan, counsel for Wu, who would be submitting that there had been an abuse of process such that a fair hearing could not be held and should therefore be stayed. Strachan will be arguing this today.
The missing link
We admit to be slightly hard of hearing but we have to take issue with the sound system used by the Hong Kong Institute of Certified Public Accountants for the disciplinary hearing outlined above. We moaned about it last November and it was slightly better this time. But for long periods submissions by counsel were inaudible and questions by the panel, including the chairman, were impossible for observers to hear.
It is pointless opening these proceedings to the public if they aren't able to hear what is going on. It has to be said that the HKICPA is not alone in this. We have had had difficulties listening to proceedings in the High Court, and elsewhere. With the technology available these days it is a relatively simple and inexpensive task to provide decent sound.