Hong Kong’s regulators turn their scrutiny to Convoy’s financial statements and auditor in their crackdown of Enigma Network
- Zhonghui Anda CPA, which qualified each of Convoy’s three financial statements with multiple exceptions, failed to convey the risks in the results, the Financial Reporting Council said
- The audit firm would also become the subject of an investigation, FRC said
The Financial Reporting Council (FRC), Hong Kong’s top accounting regulator, said it has begun an investigation into the financial statements of Convoy Global Holdings, and singled out its auditor for failing to raise the red flag on the financial advisory firm’s state of accounts.
Zhonghui Anda CPA, which qualified each of Convoy’s three financial statements with multiple exceptions, failed to convey the risks in the results of the largest adviser to Hong Kong’s Mandatory Provident Fund, the regulator said, adding that the auditor would also become the subject of an investigation. Calls to Zhonghui’s office in Causeway Bay went unanswered.
“An auditor is not permitted to qualify the audit opinion if the unknown effects of such exceptions could be both material and pervasive,” the FRC said, adding that the auditor should have withdrawn from the audit, or added disclaimers in its assessment. “This is because a qualification would be inadequate to communicate the gravity of the situation in those circumstances.”
Convoy, which provides financial advice to more than 100,000 pension holders in the city’s retirement savings scheme, is the litmus test of Hong Kong’s regulatory ruggedness and probity. The firm, which last week reported a combined loss of HK$2.6 billion (US$335 million) over three years, was at the centre of a financial scam.
“We believe the auditor will fully co-operate with the regulator,” said a Convoy spokesman.
The city’s Securities and Futures Commission (SFC) and the Independent Commission Against Corruption (ICAC) charged a former Convoy director and two of his associates with conspiracy to defraud HK$89 million from the company. The trio were acquitted of all charges last November, a verdict which the ICAC is filing an appeal against.
Trading of Convoy’s shares has been suspended since December 2017 as the ICAC and SFC began their investigations. Hong Kong’s stock exchange announced last May that it would expel Convoy’s shares, a decision which the company appealed against. The release of Convoy’s financial results was a crucial condition for the company’s shares to resume trading.
Convoy reported a 2017 loss of HK$1.44 billion, narrowing to a HK$617.8 million deficit in 2018, followed by a HK$540.4 million loss in 2019.
Hong Kong’s regulators had tried for many years to bring down the Enigma Network amid widespread suspicions of fraud, market manipulation and corporate misconduct in transactions among the companies involved.