One of Hong Kong's 'big six' accounting firms, Ernst & Young (E&Y) is under scrutiny from the Hong Kong Society of Accountants (HKSA) to see if it breached ethical standards in a document which was released to life insurance agents at a seminar. It is understood senior society officials have made contact with E&Y to seek clarification on the matter. The society's inquiries centre on Statement 1.205 in the body's professional ethics. The statement says that paid or unpaid advertising of services normally available from a firm is prohibited. It goes on to say that publicity is permitted in some cases, provided that 'it does not extol the services offered by the member or firm, or suggest that its services are to be preferred to those of another member firm', and 'it is not an uninvited attempt to solicit potential clients'. The inquiries will address both the contents and distribution of the document. The E&Y document relates to a deal it says has been negotiated between the Inland Revenue Department (IRD) and insurance industry representatives on tax allegedly not paid by insurance agents. E&Y was appointed last month to act on behalf of a number of insurance bodies, including the Life Underwriters Association (LUA) and the General Agents and Managers Association (Gama). As part of a get-tough policy on tax evasion, the IRD has made insurance agents a central target for investigation because of large claims for tax deductions they have made in recent years. Observers in the tax and insurance communities say the document appears to contain mistakes in the representation of E&Y's ongoing role in negotiations between individual insurance agents and the IRD. The document seems to suggest insurance agents must use E&Y to become part of the IRD deal. 'The Commissioner (of Taxation) has indicated all insurance agents should appoint Ernst & Young so they can join this plan,' a translated version of the text says. It goes on to say that agents should 'compute and inform' the IRD of all the undercharged tax and penalties. 'Everything should be handled by Ernst & Young and the investigations unit of the Inland Revenue Department,' it says. Tax partners at other firms said yesterday this statement made it appear no firm but E&Y could represent insurance agents. 'Informally, I have confirmed with the IRD that it never said the insurance agents should appoint E&Y to represent them in this scheme,' another 'big six' firm partner said. Another senior tax source said another part of the document contained an inaccuracy in implying 'all' files of life insurance agents were being transferred to the IRD's investigations unit for 'in-depth tax audits'. Only some life insurance agents' files are being transferred. E&Y tax partner Stephen Lau admitted some parts of the document had used 'an unfortunate choice of words'. He said 10 copies of the document had been left for delegates after a July 18 speech he delivered at an insurance industry seminar, which dealt with the IRD-insurance agents' issue. He said there were between 100 and 200 delegates. This was the only occasion a limited number of copies were made freely available to attendees, Mr Lau said. He said they were not handed out to individual participants. After separate visits by E&Y personnel to the LUA and Gama representative bodies, and agents at insurance companies AIA and Manulif - all of which explained the IRD offer - copies were made available only where interested agents and representatives made requests for such copies, he said. Mr Lau said that once the wrong choice of words was discovered - soon after he made his July 18 speech - the firm 'wrote to people and said some details were incorrect'. It had not been possible to send corrections to delegates who had attended his July 18 speech because there was no record of who had received the 10 copies, he said. Mr Lau said E&Y had since been making it clear that 'any firm can represent any agent, or agents can approach the IRD without any firm representing them'. This had been stated in writing to both the LUA and Gama, he said.
