CHAN KWOK KI v. THE HONG KONG SOCIETY OF ACCOUNTANTS

HCAL3141/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE
LAW LIST NO. 3141 OF 2001

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J U D G M E N T

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1. This application for judicial review arises out of a practice review of the applicant's accountancy practice undertaken by the respondent pursuant to Part VIA of the Professional Accountants Ordinance, Cap. 50 ("PAO"). Leave to apply for judicial review was granted on 28 November 2001.

Background

2. The applicant is a certified public accountant. He has been a full member of the respondent since 1989. He commenced his present practice in 1994.

3. In April 1998, the applicant was randomly selected for a practice review. Mr Danny Li ("the Reviewer") was appointed the reviewer. The Reviewer subsequently made a written report on the practice review to the Practice Review Committee of the respondent ("PRC"). On 31 May 2000, the PRC issued its report on the practice review ("PRC Report"). The PRC Report is made up of two parts. Part 1 contains detailed findings. Part 2 contains a number of recommendations. The PRC further instructed that a second or follow-up practice review be conducted on the applicant's practice, with nature and extent similar to the one completed.

4. Between June and November 2000, the applicant wrote several letters to the PRC for the attention of the Practice Review Director, Mr Raphael Ding, and also to the President and Vice-presidents of the respondent, in which he made complaints and objections to the PRC Report. On 9 February 2001, the Chairman of the PRC informed the applicant in writing that the PRC would not revise its report.

5. In the meantime, the applicant was diagnosed to be suffering from chronic myeloid leukemia. He was hospitalized between March and June 2001 and again in July 2001. He continues to receive medical treatment thereafter.

6. On 1 November 2001, the applicant commenced these proceedings. Apart from seeking leave to judicial review, the applicant also seeks an extension of time in that his application is out of time. In his Form 86A, he gave very detailed grounds and explanations for his application, running into 183 paragraphs. In opposition to the application, the respondent had filed an affidavit of Mr Chau Yu Nien Colin ("the respondent's affidavit") on 25 January 2002.

The application

7. The applicant seeks a number of reliefs, which can be summarized as follows :

(1) An order of certiorari to quash or a declaration declaring void the decision of the PRC to instruct a second practice review on the applicant's practice;

(2) An order of certiorari to quash or a declaration declaring void the recommendations contained in the PRC's Report;

(3) An order of certiorari to quash two of the Detailed Findings contained in the PRC's Report, namely, Findings 23 and 24 ("Findings 23" and "Findings 24");

(4) A declaration declaring section 32C of the PAO to be inconsistent with Article 22 of the Bill of Rights Ordinance, Cap. 383 ("BORO");

(5) An order of mandamus requiring the council of the respondent ("the Council") to issue directions to the PRC relating to the exercise of the PRC's power under sections 32D(1), (2) and (3) of the PAO; and

(6) An order of mandamus requiring the PRC to determine the practice and procedure in relation to practice reviews pursuant to section 32D(1)(a) of the PAO and according to law.

8. The applicant also sought an order for costs in Form 86A, but abandoned it at the close of the hearing.

9. In his Form 86A, the applicant set out five main grounds for his application. They are :

(1) Illegality and ultra vires acts;

(2) Error of law;

(3) Procedural impropriety after the issue of the PRC Report;

(4) Contravention of the BORO; and

(5) Procedural impropriety after the issue of the PRC Report.

Delay

10. It is common ground that there is delay in bringing these proceedings, which were brought more than three months after the PRC's Report was issued. The applicant seeks an extension of time and explains the delay on the basis of his ill health. The respondent does not take issue with the application to extend time. Having regard to the special circumstances arising out of the applicant's health condition and considering that there is no suggestion of any prejudice to the respondent, I am of the view that the discretion should be exercised in favour of a time extension. The time for commencing the present judicial review application is accordingly extended.

Practice review programme and the procedures

11. Before looking at the grounds relied upon by the applicant in support of the application, it is helpful to set out briefly the purpose and operation of a practice review and the procedures involved.

12. The practice review programme was introduced in 1992 by the addition of Part IVA to the PAO. Paragraph 2 of Statement 1.400 states that the main objective of the programme is to ensure that the professional standard as defined by the PAO are maintained, observed and applied. Paragraph 3 of Statement 1.401 further states that the programme is intended to be educational and to assist practice members to improve on their professional standards.

13. Section 32A of PAO deals with the establishment and the constitution of the PRC. Section 32A(8) and (9) provide that the PRC may delegate to its sub-committees any of its functions or powers, except the power to make complaint to the registrar of the respondent against a practice unit, and that such delegation shall not preclude the PRC from performing or exercising any function or power to which the delegation relates. Section 32A(10) empowers the PRC to regulate its own procedure and business, subject to any direction from the Council of the respondent.

14. As to the powers of the PRC and of the reviewer, they are set out in sections 32D and 32E of PAO respectively. Under section 32D(1), the PRC has the power to determine the practice and procedure relating to practice reviews, and to issue instructions to a reviewer on practice reviews generally or regarding particular review. Upon receipt and consideration of the reviewer's report on a practice review, the PRC may make recommendations to the practice unit concerned regarding the application by it of professional standards : section 32D(2). It may also instruct the reviewer to carry out a further or follow-up practice review: section 32D(3). The PRC may also make a complaint to the registrar of the respondent ("the Registrar") if it is of the opinion that there has been a failure to observe, maintain or apply professional standards : section 32D(5).

15. Section 32C of PAO and Statements 1.400 and 1.401 issued by the respondent prescribe the conduct and the procedures of a practice review. A summary of the review procedures endorsed by the Council is set out in Appendix A to Statement 1.401. Briefly stated, the Registrar is required by section 32C(2) of PAO to give written notice to practice units that have been randomly selected for practice reviews. The practice unit is required to complete a Questionnaire about its practice, which contains 11 control objectives. The practice unit is also required to supply a list of its audit clients and other information requested by the reviewer. Sample files selected by the reviewer are reviewed. This is followed by an on-site review. At the end of the on-site review, the reviewer draws up a draft report of his factual findings and discusses it with the practice unit. Thereafter, the practice unit and the reviewer are required to sign on the draft report to confirm the factual accuracy.

16. The reviewer then prepares a report to the PRC incorporating the report of factual findings as discussed with the practice unit. After the Practice Review Director has reviewed it, a dated draft of the reviewer's report is prepared. Section 32C(4) of PAO requires that the dated draft be sent to the practice unit for comments. Upon receipt of the submissions of the practice unit, the reviewer then finalizes his report. In finalizing the report, the reviewer may make changes to the dated draft, having regard to the submissions received. Section 32C(6) of PAO provides that the practice unit's submissions must be attached to the reviewer's final report. The reviewer then forwards his report and the practice unit's submissions to the PRC for review. Under section 32C(7) of PAO, a copy of the report submitted to the PRC is required to be sent to the practice unit.

17. The PRC normally delegates the review of the reviewer's report and the practice unit's submissions to a three-persons sub-committee. After consideration, the PRC may issue a final report, which is graded in terms of the degree of compliance with the professional standards. The PRC may also instruct the reviewer to perform follow-up action.

18. Paragraph 39 of Statement 1.401 states that a follow up review will be required where the practice unit has not satisfied the PRC that "all the key control objectives have been maintained and where the deficiencies are likely to materially affect the overall quality of an audit engagement". Paragraph 39 further states that in such cases, the PRC will also exercise its power under section 32D(2) of the PAO and make recommendations, which it expects the practice unit to implement in order to ensure the maintenance of professional standards. The implementation of the recommendations will be examined in the follow-up review.

19. I now turn to deal with the applicant's grounds for application.

Ground 1 : Illegality and ultra vires acts

20. The applicant's complaint under this ground is that the PRC Report has imposed on him requirements or standards other than the professional standards as defined by section 2 and 18A of PAO. In so doing, the PRC and the Reviewer had acted outside the scope of practice review and ultra vires paragraph 11 of Statement 1.401, hence in contravention of section 32A(10) of PAO. The applicant also complains that the PRC, in making the recommendations in the PRC Report, had acted in contravention of section 32D(2) of PAO.

21. The applicant in support of this ground relies upon four matters. Two of these matters, which the applicant terms as Illustration 1 and Illustration 4, turn on the PRC's recommendations under Part IIA of the PRC Report on performance of audit engagement. The relevant recommendations appear at pp.15-16 and read as follows :

"The auditor should always use his best endeavour to obtain sufficient, relevant and reliable audit evidence to enable him to express an unqualified opinion. Accordingly, the practice unit should always plan to verify the existence, quantities and condition of stocks held by its clients where stocks are material. The principal sources of evidence are stock records, stock control systems and the results of ant stocktaking and test-counts made by the auditor himself. Normally, the best method by which the auditor can obtain evidence of the proper application of the client's stocktaking procedures and hence of the existence, quantities and condition is attendance at client's stocktake. Therefore, if the client relies on a stocktake(s) to ascertain the quantities and conditions of stocks, non-attendance by the auditor at the client's stocktake(s) is normally not acceptable, unless reliance on other procedures is considered more appropriate in verifying the existence, quantities and condition of stocks. If stocktakes are not conducted by its clients, the practice unit is still required to perform alternative audit procedures (including verification of reliability of the stock records, e.g. by performing test counts) to achieve the above objectives. Even in circumstances where no practical alternative is available, this fact together with the reason for non-attendance at the stocktake should be properly documented in the audit file and explained in the audit report. A qualified opinion or a disclaimer of opinion depending on the auditor's assessment of the potential impact, will be appropriate in the circumstances.

In deciding whether to accept an audit appointment or reappointment as auditor, the practice unit should consider whether limitations on the scope of its work are likely to be imposed by the client such that the practice unit may be frustrated in performing its function as an auditor. The limitations of scope may result from a client's conduct, such as the directors' refusal to provide access to books and records, or to give the required information and explanations, or where the directors prevent certain important necessary audit steps from being carried out e.g. by refusing to organise stocktake or allow the auditor to attend any stocktake, without reasonable grounds, or to bear the costs of significant audit steps. The auditor should accordingly consider whether he should continue to act as auditor as he may not adequately discharge his duties under the Companies Ordinance and may, in some circumstances be regarded to be condoning the directors' avoidance of their responsibilities under the Companies Ordinance to produce proper financial statements and to have them properly audited.

This principle applies to all major items in the accounts.

The practice unit's attention is also drawn to the Inland Revenue (Amendment) Ordinance of 1995. This amendment specifies the minimum records which a business must keep for taxation purposes and increase the maximum fine for failing to keep proper records from HK$5,000 to HK$100,000. The guidelines issued by the IRD pursuant to the amended legislation specify that businesses MUST prepare a statement (including value and quantities) of trading stock held at the end of each accounting year. This generally involves conducting a physical stocktake . Section 51C(4)(c)(ii) of the amended Inland Revenue Ordinance requires documentary evidence of such a stocktake to be kept as business record. It should be noted that the level of details required to be maintained in respect of a stocktake is very extensive and necessitates careful advanced planning of any such stocktake. The practice unit should therefore approach its clients well before the year end to make the necessary arrangements for attending stocktakes and/or to ascertain whether any assistance is required from the practice unit in organising stocktakes."

22. The recommendations were made in the context of the Reviewer's observation that in two out of the four audit files reviewed, the applicant had not attended the year-end physical stocktake. In his submissions to the Reviewer, the applicant explained that in one case, attendance was prevented by circumstances, that he was not invited to attend, and that he had given a qualified opinion. In the other case, the applicant said that the directors of the client did not carry out a physical stocktake and he had, after consideration, made a disclaimer in the audit report in compliance with Statement of Audit Standards ("SAS") 600.

23. The applicant does not take issue with the first paragraph of the recommendations, including the point that attendance at physical stocktake is important. It is the second and third paragraphs that he objects to.

24. On the second paragraph, the applicant firstly says that the PRC has imposed on him restrictions on accepting audit engagements when the restrictions are not part of the professional standards as set out in SAS 600. He refers to paragraphs 72 and 73 (paragraphs 42 and 43 of the 2000 revised version) of SAS 600. Paragraph 72 distinguishes between limitations of audit scope imposed on auditors and those outside the control of the auditors or the directors, with examples given. Paragraph 73 points out that a limitation may sometimes be imposed on the auditor by a client. It states that when the proposed terms of an audit engagement include a scope limitation such that the auditor believes the need to issue a disclaimer of opinion exists, an auditor would normally not accept such a limited engagement. The applicant's contention is that paragraph 73 does not provide that an auditor should not accept an engagement where the scope limitation results from the client's conduct.

25. Secondly, the applicant says that the reference to the Companies Ordinance is inappropriate in that the PRC is not charged with the duty of administering the Companies Ordinance.

26. I am bound to say that the applicant has taken an unduly restrictive view of paragraph 73 of SAS 600. The crux of paragraph 73 is that an auditor should refuse an engagement if there are scope limitations that may prevent him from properly discharging his role as an auditor. Whether the limitations are imposed explicitly in a letter of engagement or by the conduct of the client, such as refusing to undertake a stocktake or not allowing the auditor to be present thereat, it does not matter. The second paragraph of the PRC's recommendations simply reiterates this principle. It is a principle that goes both to auditing standard and to professional ethnics. It cannot be right that an auditor should refuse an engagement with limitations that frustrate his work as an auditor when the limitations are explicitly imposed, but not so when the limitations are imposed by conduct.

27. I am also unable to agree with the criticism made against the reference to the Companies Ordinance. The Companies Ordinance governs not only the obligations of directors, but also the duties of auditor. The reference to both these aspects in the second paragraph of the recommendation is neither irrelevant nor inappropriate.

28. As to the third paragraph of the recommendations, the applicant says that the PRC acted in excess of its powers in requiring him to take into consideration the obligations imposed on business undertakings by section 51C of the Inland Revenue Ordinance ("IRO").

29. The applicant is no doubt correct that in practice reviews, the PRC is primarily concerned with the maintenance, observance and compliance of the accounting and auditing standards as reflected in the SAS, Statement of Standard Accounting Practice ("SSAP") and Audit Guidelines ("AG"), which form part of the professional standards. The third paragraph of the PRC's recommendations, however, merely draws the applicant's attention to his clients' legal obligation under the IRO. The nub of the paragraph is that the applicant should attend stocktaking and, to that end, should make the necessary advance arrangement with his clients or, if necessary, assist his clients to organize the stocktake. The PRC is not imposing additional professional requirement or standard on the applicant. The necessity and importance of an auditor's attendance at physical stocktake have been set out in SAS 401.1. The recommendation of the PRC does no more than reminding the applicant of the principles set out in SAS 401. The applicant challenges the reference to the IRO as being irrelevant consideration. I cannot agree. The legal obligation under section 51C of the IRO, though owed by the client, explains and highlights the importance of the auditor's presence at the physical stocktake. It is not an irrelevant consideration.

30. Another matter relied upon by the applicant, which he calls Illustration 3, relates to Detailed Findings no. 8 under Part I of the PRC Report. What happens is that in one of the files reviewed, the directors of the client had changed the classification of property of HK$9.22 million worth from "land and building" to "investment property". The applicant had issued a clean unqualified audit report for the year in which the reclassification took place. The Reviewer found that there was no documentation in the audit file to explain why the applicant agreed to a reclassification. The applicant had made submissions to the Reviewer that the property was formerly used as a director's residence, but was subsequently let to an unrelated party, and that the working file had documented the formal and provisional tenancy agreements. In response to this, the Reviewer pointed out that the documentation "did not record the [applicant's] consideration and assessment that the property qualify [sic] as investment property". The Reviewer recommended that "the [applicant] should fully document [his] consideration and conclusion in the audit file.

31. The applicant complains that the PRC has imposed upon him the directors' obligation under section 122 of the Companies Ordinance. In my view, the applicant has misunderstood the point. It is not about whether the reclassification is correct or justified. The point made by the Reviewer under Detailed Findings no. 8 is that there ought to be in the working papers indication that the applicant had considered the question of reclassification, and indication that justifies the issue of a clean audit report. This is not an additional or new professional standard. As pointed out by the Reviewer, paragraph 6 of SAS 230 requires working papers to be sufficiently complete and detailed as to provide an overall understanding of the audit to another experienced auditor. More specifically, paragraph 2 of SAS 230 states that auditors should record the planning, nature, timing and extent of the audit procedures performed, the results thereof, and the conclusions drawn from the audit evidence obtained. The inclusion of the tenancy agreements in the working papers is one matter, recording the views and conclusions the applicant formed on these documents is another matter.

32. The final matter drew upon by the applicant, which is Illustration 4, concerns Detailed Findings no. 18 in the PRC Report. The Reviewer has found that in one of the files, there was no documentation to show that search for unrecorded liabilities had been performed, and suggested that the applicant should improve the documentation. In his submissions to the Reviewer, the applicant stated that he had examined the bank passbook of the only bank account for the post-balance sheet period and copies of the passbook were included in the working papers. The Reviewer's comment is that the applicant had not documented the details and results of the audit work performed, the results and the conclusion he drawn. The PRC additionally comments that search for unrecorded liabilities should cover not only bank passbook, but also cashbook, unpaid invoices and so on.

33. The applicant's objection is that the PRC had imposed on him an obligation to search for unrecorded liabilities, an obligation which is not part of the Statements on professional standards issued by the respondent. He points out that under AG 2.52, an auditor is only required to review post-balance sheet events, but not to search for unrecorded liabilities. The applicant further argues that liabilities include both contractual and tortuous liabilities so that it is unreasonable to require an auditor to search for the potential liabilities of the client. The respondent's affidavit, however, points out that "unrecorded liabilities", in auditing terms, refers to liabilities that had been incurred during the accounting year, the documentary evidence of which was, however, not yet in existence. Hence, a search for unrecorded liabilities simply means checking the post-balance sheet events to see if there is documentary evidence indicating liabilities that had been incurred during the accounting year and need to be accounted for.

34. It seems to me that the applicant has equated "unrecorded liabilities" with unknown or potential liabilities, which must be erroneous. In my view, the respondent's explanation of the term is to be preferred. As to AG 2.52, while it is true that it does not specifically state that an auditor has to search for unrecorded liabilities, it is plain from paragraphs 13 to 15 of AG 2.52 that an auditor's normal verification work on the balance sheet extends to examining post-balance sheet events. He is expected to carry out audit procedures on the events that occur after the date of the balance sheet so as to obtain reasonable assurance that they are properly reflected and accounted for in the financial statements. It matters not this is called a "review" or a "search". The essence is that the applicant, as an auditor, is under a duty to verify the balance sheet and that includes examining the post-balance sheet events to see if there are any unrecorded liabilities that need to be accounted for. It will appear from the applicant's submissions to the Reviewer that he did not at that time take issue with this. He merely disagreed that there was no documentation on the performance of the search. The comments of the Reviewer and the PRC under Detailed Findings no. 18 do not create new or additional obligations on the applicant.

35. In short, ground 1 is not made out.

Ground 2 : Error of law

36. The background to this ground briefly stated is this. One of the applicant's clients is a company. The major asset of the company comprised landed properties, which were mortgaged to the bank to secure banking facilities to a shareholder of the company. At the same time, the shareholder had made a loan to the company. The audited financial statements of the company contain the following notes :

"Note 8. Amount due to a shareholder

..., the rights to repayment of the balances due have also been subordinated by the shareholder in favour of other creditors.

Note 9. Banking Facilities

The Company's land and buildings and investment properties have 7been pledged to a bank as collaterals for banking facilities granted to the shareholder of the Company."

37. Arising out of these two notes, Findings 23 and 24 of the PRC's report state that :

"23. There is no documentation in the file of audit work preformed to verify and support the disclosure in note 8 to the financial statements that 'the rights to repayment of the balances due have also been subordinated by the shareholder in favour of other creditors.'

24. Note 9 to the financial statements states that the company's property had been pledged to secure the banking facilities granted to the shareholder of the company.

A prudent estimate of the financial effect of the contingency (i.e. the actual facilities utilized at the balance sheet date) should be disclosed or a statement that it is not practicable to make such an estimate. (para. 10c) of SSAP8)."

38. The applicant submitted to the Reviewer that the statement in issue under Note 8 corresponds to section 265 of the Companies Ordinance, which concerns preferential payments in winding-up. The applicant takes the view that "subordination" is a legal principle in insolvency law, hence no audit work is required. At the hearing, the applicant argued that the Reviewer and the PRC had misunderstood the word "subordinated", that he only meant to say that the shareholder's right is less than that of the bank, the latter being a secured creditor.

39. As to Note 9, the applicant submitted that SSAP 8 was irrelevant. He explained that it was a tripartite financial arrangement and that the company had a right to set-off against the shareholder's loan in the event the shareholder defaulted in the payment obligations to the bank. The applicant says that surety and set-off are matters of law on which no audit work is required.

40. The PRC, acting by the Practice Review Director, had corresponded extensively with the applicant on these two findings. In particular, the letter dated 14 September 2000, in rejecting the applicant's request to withdraw the two findings, succinctly states the PRC's views on the matter. In short, it disagrees that this is a case of subordination, and that if it is a case of subordination, the PRC expects to see audit evidence in the working file. Secondly, it considers that any amount drawn down by the shareholder represents a contingent liability to the company and ought to be disclosed in the financial statements.

41. For my part, I do not accept that the PRC had made an error of law in relation to Findings 23 and 24. The fact that the company had mortgaged its properties to secure the advancements to the shareholder by the bank means that the bank becomes a secured creditor of the company. The bank is entitled to turn to the mortgaged properties in the event of the borrower's default. It does not mean that the bank is entitled, in the normal course of events, to be paid first and before other creditors, including the shareholder who had lent money to the company. In the absence of a separate agreement to do so, it is incorrect to state that the shareholder had subordinated its rights to repayment of the shareholder loan in favour of other creditors. If what the applicant meant was that the shareholder's right is "less" than that of the bank in the sense that the bank is a secured creditor, then the use of the word "subordinated" was inappropriate.

42. As for Finding 24, the company may be entitled to reduce its indebtedness to the shareholder in the event the shareholder defaulted in its payment obligations to the bank and the bank had called on the mortgaged properties. It is a right contingent upon the event of default and the bank exercising its rights over the security. Conversely, the amount of advancement made to the shareholder by the bank represents a contingent liability of the company in that the assets of the company was under a risk, the extent of which depended on the extent of the shareholder's indebtedness to the bank. It is a contingent liability notwithstanding that the company may have a right to reduce its indebtedness to the shareholder. There is a potential impact on the assets of the company that calls for disclosure in the financial statements. SSAP 8, which is on accounting for contingencies, is both relevant and applicable.

43. Ground 2 therefore fails.

Ground 3 : Procedural impropriety before the issue of the PRC Report

44. This ground covers two complaints. Firstly, it is said that the PRC had altered the factual findings (i.e. Detailed Findings no.18 & 26 and the list of Good Practices at p.18 of the PRC Report) without prior notification to the applicant. Secondly, the applicant says that the PRC had unlawfully sub-delegated to the Reviewer its power to make recommendations.

45. On the first complaint, it is misconceived. The PRC is not required by the PAO to issue a report on a practice review, but it may issue a final report to the practice unit setting out its recommendations or indicating areas for improvement: see the Appendix to Statement 1.401. Being a report of the PRC, it may adopt or incorporate the reviewer's report, whether in part or in whole. Equally, the PRC must be free and entitled to include in its report recommendations and suggestions other than those stated in the reviewer's report.

46. Of the three alterations complained of, the first is a further comment of the PRC on what a search for unrecorded liability entails. The Reviewer had in the dated draft of his report made finding on this issue of searching for unrecorded liability. The PRC's comment is addressing directly the submissions the applicant made in response to the Reviewer's finding. It is not an alteration to the factual finding, as contended by the applicant. It is a comment that the PRC is entitled to make in its own report. Similarly, the PRC is entitled to exclude Detailed Finding no.26 of the Reviewer's report from the PRC Report, presumably because it does not wish to adopt it. Also for the same reason, there is nothing objectionable on the addition of paragraph 5 to the list of Good Practices at p.18 of the PRC Report. The PRC is doing nothing more than discharging its function of indicating to the applicant the areas for improvement.

47. The second complaint stems from the same misconception. It is true that the Reviewer had in his report made a number of recommendations and the recommendations also appeared in the PRC Report. That however does not mean that the PRC or its sub-committee had delegated the power to make recommendations to the Reviewer. The PRC, when issuing its report, may adopt the recommendations of the Reviewer. Once adopted, the recommendations become the recommendations of the PRC. Insofar as the applicant is arguing that the Reviewer should not make recommendations, there is nothing in the PAO or in Statement 1.401 to limit the scope or the contents of the Reviewer's report.

48. As a matter of fact, the sub-committee of the PRC had after receipt of the Reviewer's report and before issuing the PRC Report, requested for additional information from the applicant. This shows that the PRC sub-committee did not, as the applicant contends, let the Reviewer do its job of making recommendations. It indicates, too, that the PRC did not adopt the Reviewer's recommendations blindly.

49. There is no merit in ground 3.

Ground 4 : Contravention of BORO

50. The applicant's argument under this ground is that section 32C only affords a practice unit the opportunity to respond to the dated draft of the reviewer's report, but the reviewer can make changes to the dated draft after receipt of the practice unit's submissions. The practice and procedures set out in Statement 1.401 is to the same effect. The applicant says that this contravenes Articles 1 and 22 of the BORO. As Mr Harris for the respondent aptly summarizes, the applicant is in effect arguing that he is entitled to have the last word on the Reviewer's report.

51. The effect of section 32C(4) to (6) of PAO, upon a plain reading, is that the reviewer is to finalize his report after considering the submissions from the practice unit. The necessary implication is that he may amend or revise the dated draft having regard to the practice unit's submissions on the dated draft. The whole design is to enable the practice unit to make representations on the reviewer's report before it is finalized and submitted to the PRC. This being the reviewer's report, it is only natural that the last word falls to be the reviewer's. Articles 1 and 22 of BORO, dealing with equal right to the enjoyment of civil and political rights, equality before the law and protection against discrimination are wholly irrelevant.

52. As a matter of fact, the Reviewer had forwarded his comments on the applicant's submissions to the applicant before he finalized his report. According to exhibit CYC-1 to the respondent's affidavit, the Reviewer had spoken to the applicant, who indicated that he would not make further comments. If indeed the applicant ought to have the last word, then he had been offered the opportunity.

53. The applicant also argues that the practice review procedure is against natural justice in that it is open to the reviewer to introduce new allegations without obtaining the practice unit's prior agreement to the factual basis. It is also said that the Reviewer had violated his rights to make submissions on the dated draft in that the Reviewer had commented on his submissions. He cites eight instances that, in his view, the Reviewer had changed the subject matter and stance consequential upon the submissions he made.

54. Insofar as there was a matter that the Reviewer wished to refer to the PRC, and the applicant did not previously have an opportunity to comment on it, then Mr Harris readily accepts that the applicant should be given an opportunity to make representations on it. That in my view is all that the applicant is entitled to. There is no procedural impropriety or unfairness in the Reviewer making comments or responses to the applicant's submissions on the dated draft, although different considerations may apply if the Reviewer were to introduce completely new facts and issues. The Reviewer's findings and views as well as the submissions of the applicant were all placed before the PRC and it is for the PRC to formulate its views on them.

55. As to the eight findings cited as examples of the Reviewer's changing his stance or allegation, it is not necessary to set them out in this judgment. A reading of the findings, the applicant's submissions on the dated draft and the reviewer's report in its final form will show that the Reviewer's comments have not raised allegations or facts that are new or outside the parameter of the initial findings and/or the applicant's submissions. They are comments or responses that the Reviewer is entitled to make.

56. Ground 4 is not made out.

Ground 5 : Procedural impropriety after the issue of the PRC Report

57. This ground centers around the applicant's letter dated 16 October 2000. The letter was addressed to the President of the respondent, in which the applicant expressed his disagreement with and dissatisfaction with the PRC and its report. He requested the Council to investigate the matter and to issue directions under section 32B(1)(c) of the PAO. Similar letters were sent to the Vice-presidents. The Registrar replied to the letter primarily to the effect that the Council did not consider it appropriate to interfere with the decisions of the PRC in the absence of evidence showing that the PRC had acted wrongly or improperly. The applicant's letter was further referred to the PRC and the PRC Chairman replied that the PRC would not revise its report and its decision on calling for a further practice review.

58. The applicant now contends that in handling this letter, the PRC was biased against him, had acted against the principles of natural justice and also against the BORO. It is also said that the PRC had breached the requirement of confidentiality.

59. The applicant says that the PRC was biased against him because it was dealing with an appeal from its earlier decision (i.e. the PRC Report), which was reached by its sub-committee, and members of the sub-committee also sat on the PRC when it deliberated over the applicant's letter. In particular, the applicant complains that the Practice Review Director, who had replied on behalf of the PRC to the applicant's series of letters after the issue of the Report, was also involved in handling the letter of 16 October 2000. Additionally, the applicant also complains that the Registrar, in replying to the letter, had breached paragraph 50 of Statement 1.401, which provides that the identity of the practice unit being reviewed should not be made known to the PRC.

60. As a starting point, it must be recognized that the PRC is not an appellate body. It does not hear appeals from decisions of its sub-committee, the reviewers or the Practice Review Director. The PAO does not provide for an appeal procedure. Neither does it confer upon the PRC the authority to hear appeals. When the PRC replied to the letters written by the applicant subsequent to the PRC Report, including the letter of 16 October 2000, it was not handling in an appeal against the PRC Report. It was only responding to the complaints and objections of the applicant to the PRC Report. Accordingly, the point on bias is misconceived.

61. Similarly, with regard to the position of the Practice Review Director, the PRC was not adjudicating upon the disagreement between the applicant and the Practice Review Director over Findings 23 and 24. Secondly, when the Practice Review Director wrote to the applicant, he was writing on behalf of and upon the instruction of the PRC, and he was essentially relating the responses of the PRC to the applicant's letters. After all, when the applicant wrote to the PRC, he himself had marked the letters for the attention of the Practice Review Director. The applicant was aware and conscious of the role of the Practice Review Director. The Practice Review Director did not correspond with the applicant in his personal capacity. There is no basis for the complaint against the Practice Review Director's presence when the PRC considered he applicant's letter dated 16 October 2000.

62. As to the breach of confidentiality requirement, it is to be noted that paragraph 50 of Statement 1.401 is dealing with the practice review process and with reporting. By the time the letter of 16 October 2000 was handled by the respondent's Registrar, the review process was over. Indeed, the reality is that the applicant had chosen to write openly to the President and Vice-presidents of the respondent. He had not requested to keep his identity in confidence.

63. Ground 5 therefore fails.

Other Points

64. Other than the five grounds mentioned above, the applicant had also raised various other matters in his written submissions. I do not intend to go into each of them as they are essentially variations of the several themes that had featured in the five grounds for judicial review. I only wish to deal briefly with one point relating to the role of the PRC.

65. The applicant maintains that practice review is not only educational, and that the PRC, when making recommendations, is determining questions that affect the rights of the practice unit. He contends that failure to comply with the recommendations of the PRC carries consequences of disciplinary proceedings. He refers to two cases reported in The Hong Kong Accountant December 2001 p.8 and February 2002 pp.5-6 as supporting his contention. But in both reported cases, the accountants were not disciplined for non-compliance with recommendations made in a practice review. They were disciplined for their failure to comply with review procedure and refusal to assist and co-operate with the reviewer. As Mr Harris points out, failure to comply with the directions of the PRC per se is not disciplinary matter. The PRC does not determine the substantive rights of the person being reviewed.

66. The applicant has also referred to a number of authorities. I do not consider it necessary to go into any of them as they have no or no direct bearing on the issues under consideration.

Conclusion

67. For the reasons set out above, there are no merits in the application for judicial review. The application is therefore dismissed.

68. There is no reason why the general principle of costs follows events should not be applied. The fact that the applicant had at the close of the hearing abandoned his claim for costs is not a reason for denying the respondent the costs. Neither is a comparison of the financial resources of the parties a ground for not awarding costs against the applicant. I therefore also make an order nisi that the applicant pays the respondent the costs of the application, to be taxed if not agreed.