Accounting giant EY and two partners fined for auditing failures during Hong Kong listing procedures 20 years ago

Accounting giant EY and two partners have been fined a combined HK$700,000 (US$89,171) and legal costs of HK$1.5 million in Hong Kong for audit failures during the listing of three companies two decades ago.

The decision by Hong Kong’s accountancy industry watchdog brought to a close a case that has taken 16 years to resolve – one of the longest on record in the city for audit failures surrounding stock flotations.

The Hong Kong Institute of Certified Public Accountants (HKICPA) reprimanded and fined EY HK$400,000, Kwok Chee Tack HK$200,000 and Kelvin Wong Kam-man HK$100,000 for their failures in acting as the auditors for the three companies, which collapsed soon after their listings at the turn of the century.

EY, Kwok and Wong will also have to pay legal costs for the proceedings at a combined HK$1.53 million, the accounting body said.

The three companies involved were the now defunct household-products manufacturer Gold Wo International Holdings, electronic circuit-board maker Fu Cheong International Holdings and digital-camera maker Yue Fung International Group Holding. Yue Fung holds 20 per cent of Gold Wo and indirectly holds 14 per cent of Fu Cheong.

The HKICPA said EY, formerly Ernest &Young, was the auditor for the flotations of these companies between 1997 and 2002. Wong was the “engagement partner” of Gold Wo and Kwok the engagement partner of Fu Cheong and Yue Fung.

The three listed companies collapsed in 2002, and the Independent Commission Against Corruption investigated and arrested a number of executives.

In 2007, the Court of First Instance convicted former Gold Wo chairman Fu Chu-kan, her elder sister and former vice-chairman Fu Yin-ling, and four other former executives for fake transactions to gain the listing on the stock exchange. The six were jailed for between eight and 10 years. The three firms were delisted in 2005.

The three cases sparked concerns about corporate governance in Hong Kong and have since led to reforms. The government also set up the Financial Reporting Council in 2006 to improve regulation of auditors.

All three auditors had failed to follow the procedures required by the HKICPA, the regulator said.

An HKICPA spokeswoman said the investigation had required such a long time because the companies’ problems had only emerged after the ICAC arrests in 2002.

A spokeswoman for EY said the firm had no further comment to make.