After long delays the Hong Kong accounting regulator at last announced penalties for accounting firm Ernst & Young and its former senior partner Anthony Wu. Too little, too late, writes Beida professor Paul Gillis at his weblog. Hong Kong needs an independent regulator.
The case against Wu was a slam dunk. He signed checks for an EY audit client. His defense was laughable – he only did it when other signatories were unavail-able and had approved the payments. He also served as an advisor to the com-pany, and was involved in loans to the company. Wu’s only credible defense was that, by taking 20 years to prosecute him, his defense was undermined. But he and EY had been told to preserve documents and had not done so.
EY was found guilty of not supervising Wu. EY’s management committee had been informed of what Wu was doing and did not stop him. Neither did the audit partner, Catherine Yen, who was found guilty of violating independence rules as well for signing despite Wu’s activities impairing EY’s independence.
Independence is at the heart of the CPA profession. Wu, EY and Yen have vio-lated the most sacred principle for auditors. The disciplinary committee found the breaches were persistent, flagrant and inexcusable…
The case illustrates the sad state of accounting regulation in Hong Kong. Taking 20 years to resolve the issue is unfair to all involved. Issuing fines that are insig-nificant to the parties is not going to serve as a deterrent to similar behavior in the future. Wu should have been banned for life. Yen and EY should have faced much more biting penalties. EY collected a fee of $100,000 per month for many years for Wu’s illegal services, as well as audit fees. They are not even being required to pay those back.
Hong Kong is in the early stages of reforming its governance of accounting. This case is the only reason they need to take it away from the HKICPAs and create a serious independent audit regulator.
Are you interested in previous articles by Paul Gillis. Have a look at our regularly updated list.