The Hong Kong Society of Accountants (HKSA) is again under attack for flexing its investigative powers, with Deloitte Touche Tohmatsu and two other firms crossing swords with the regulator in court. It is the third time the society has been forced to defend its authority, having successfully fended off separate challenges from Ernst & Young and Deloitte. In the latest clash, the accountancy firms are taking the HKSA to task over its decision to abort a six-month voluntary investigation and replace it with an official one. The probe concerned work done by the three firms - Deloitte, BDO Binder and Kwan, Wong, Tan & Fong - for companies in controversial kitchen materials supplier GKC Holdings. It is claimed by the firms that the sudden about-turn by the HKSA was prompted by a complaint filed by the stock exchange. This abrupt 'rude awakening' became an opportunity for the HKSA to 'prove its credentials', said counsel for the firms, barrister Gerard McCoy SC, yesterday. He told the Court of First Instance: 'A feature in this case is that the stock exchange filed a formal complaint . . . it may have been a complaint from an outside body which led the respondent [the HKSA] to prove its credentials by setting up an investigative committee. 'After six months' investigation, there has to be a profoundly good reason for terminating that investigation.' A professional standards monitoring committee - a voluntary body - had initially been set up with the assistance of the firms to scrutinise the GKC work. Six months into the investigation, however, the HKSA 'without any warning' decided to set up an investigative committee, Mr McCoy said. The HKSA claimed it was forced to do this in order to compel third parties to produce documents. 'It comes as a rude awakening,' Mr McCoy said. 'The society, without any warning, can reach this decision.' He moreover contended the net result was, for the HKSA, to misdirect itself in law. The stock exchange filed a formal complaint against the firms last July amid concerns that transactions and balances relating to GKC marble and granite supply contracts were of 'questionable existence'. GKC became the target of Commercial Crime Bureau raids in July 1998 amid accusations of fraud. The probe soon widened to investment banks associated with the company, which were questioned about GKC's activities. The stock exchange wrote to the HKSA the following January to express its concerns. The exchange questioned the credibility of financial information for various years set out in the accounting reports in a public offering prospectus in December 1997. A detailed review of GKC was subsequently completed by rival firm KPMG which reported the contract findings. The report allegedly showed fictitious marble and granite contracts on a 'massive scale'. In October, the HKSA wrote to the accountancy firms. It said it would set up an investigative committee to determine if there had been any negligence in their conduct. The firms sought a judicial review before Mr Justice Michael Hartmann yesterday to quash the decision to set up the committee. The trial continues today. Two other court challenges to similar HKSA decisions to launch probes have so far failed. Deloitte last month asked the court to quash a HKSA probe into its 1997 Guangnan (Holdings) audit. Mr Justice Frank Stock at that time ruled, however, that the accountant had 'no valid ground' to do so. Ernst & Young also failed to stymie an HKSA investigation into its 1996 audit of Cosco International Holdings. An appeal is pending.