THE PRACTICE REVIEW COMMITTEE OF THE HONG KONG INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS v. LI SAU YING

CACV 138/2020

[2022] HKCA 319

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 138 OF 2020

(ON APPEAL FROM THE DISCIPINARY COMMITTEE

OF THE HONG KONG INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS PROCEEDINGS NO. D-18-1417P)

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JUDGMENT

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Hon Chu JA (giving the Judgment of the Court):

A. Introduction

1.  By the Reasons for Decision dated 5 March 2020, the Disciplinary Committee (“Disciplinary Committee”) of the Hong Kong Institute of Certified Public Accountants (“Institute”) found three complaints preferred by the Complainant against the Respondent (“Ms Li”) proved.  By its Decision on Sanctions and Costs dated 6 May 2020 (“Sanctions Decision”), the Disciplinary Committee ordered that: 

(1)  The practising certificate issued to Ms Li be cancelled on the 35^th day of the order;

(2)  No practising certificate shall be issued to Ms Li for a period of 36 months commencing on the 35^th day of the Order; and

(3)  Ms Li pays the Complainant the costs and expenses of and incidental to the disciplinary proceedings in the sum of HK$150,000.

2.  This is Ms Li’s appeal against the Disciplinary Committee’s order made pursuant to section 41 of the Professional Accountants Ordinance, Cap. 50 (“PAO”).

B.      Background facts

3.  Ms Li was a sole proprietor who operated a part-time accounting practice (“the Practice”).  The Practice did not employ any audit staff.  At the material time, it had 26 audit clients, none of which was listed or regulated.

4.  In February 2018, the Practice was subject to its first practice review by the Complainant. 

5.  On 27 August 2018, the Complainant issued a Reviewer’s Report, which identified a number of deficiencies in the Practice’s system of quality control and audit engagements.  The Complainant found Ms Li had failed to comply with the principle of professional competence and due care under the Code of Ethics for Professional Accountants; and had also issued inappropriate audit reports in contravention of the applicable auditing standards, including the Hong Kong Standards on Auditing (“HKSA”).

6.  On 29 March 2019, the Complainant sent its proposed complaints to Ms Li and invited her to provide representations.  Ms Li provided her response by a letter dated 8 April 2019.  

7.  On 3 April 2019, the Complainant submitted a complaint against Ms Li to the Council of the Institute.  On 29 April 2019, the Institute resolved to refer the matter to the Disciplinary Panel of the Institute.

8.  Initially, Ms Li admitted the three disciplinary complaints against her (see [11] below) by signing a confirmation on 3 May 2019.  However, after the parties had made written submissions on sanctions and costs, Ms Li wrote to the Disciplinary Committee on 18 July 2019 asking that the disciplinary proceedings be “aborted”.  By another letter dated 22 July 2019, Ms Li confirmed that she wished to withdraw her admission, permission for which was given by the Disciplinary Committee.

9.  Subsequently, the Complainant and Ms Li submitted to the Disciplinary Committee respectively the Complainant’s Case[1], the Respondent’s Case[2], the Complainant’s Reply[3] and the Respondent’s Reply to the Complainant’s Reply[4].

10.  The disciplinary hearing took place before the Disciplinary Committee on 14 January 2020.  As mentioned in [1] above, the Disciplinary Committee found all the three complaints against Ms Li proved, and imposed the orders set out above.

C.  The Complaints

11.  Three disciplinary complaints (“Complaints”) were preferred by the Complainant against Ms Li.  They are as follows (respectively “1^st Complaint” to “3^rd Complaint”):

(1)  Contrary to section 34(1)(a)(viii) of the PAO, Ms Li had committed professional misconduct by issuing inappropriate audit reports which contravened the requirements under the applicable auditing standards.

(2)  Contrary to section 34(1)(a)(vi) of the PAO, Ms Li had failed or neglected to observe, maintain or otherwise apply a professional standard for her failure to maintain professional knowledge and skill at a level required to ensure her clients received competent professional services.

(3)  Contrary to section 34(1)(a)(vi) of the PAO, Ms Li had failed or neglected to observe, maintain or otherwise apply a professional standard for her failure to maintain an adequate quality control system in the Practice.

D.  The Disciplinary Committee’s decisions

D1. 1^st Complaint

12.  On the 1^st Complaint, the Complainant’s case was set out in the following particulars^[5] (respectively “Complaint 1A” to “Complaint 1D”):

“(i) In 4 audit engagements, the Respondent did not perform necessary audit work, and issued a qualified opinion. It appears that the Respondent did so on the basis that the audit reports were for tax reporting purposes and the Inland Revenue Department (“IRD”) would not be concerned with qualified opinions. However, this was in breach of Paragraphs 11 to 13 of HKSA 705 which requires certain audit procedures to be performed to support the qualified opinions.

(ii)   In 1 audit engagement, the Respondent issued a disclaimer of opinion because she was not able to obtain sufficient appropriate audit evidence due to the fact that all the company’s records were located in the Philippines, and there were no other procedures she could perform to ascertain whether the financial statements were in accordance with Hong Kong accounting standards. The Respondent did not take any actions or perform alternative procedures to address the scope limitations in accordance with the requirements of HKSA 705.

(iii)  In 2 audit engagements, the financial statements did not contain a Statement of Cash Flows as required by Paragraph 1 of HKAS 7.

(iv)  In 1 audit engagement, the company recorded its investment property at cost and did not provide for depreciation on the property, on the basis that its fair value had not decreased since acquisition, which contravened the requirements of HKAS 40.”  

13.  The Disciplinary Committee had summarised Ms Li’s answer to Complaints 1A and 1B as follows[6]:

“22. In answer to these complaints, the Respondent argued that: -

(i) her clients only prepared financial statements for the purpose of filing profits tax returns;

(ii) the directors/shareholders did not need the audited financial statements to understand the business;

(iii) the audit qualifications which the Respondent issued were acceptable to the directors/shareholders because there was no effect on their information needs;

(iv) the qualified reports were acceptable to the Companies Registry and to the IRD;

(v) no other users would rely on the financial statements;

(vi) the audit qualifications were made to avoid unnecessary audit work.

23. At the Substantive Hearing before the Disciplinary Committee, the Respondent repeatedly made the argument that as long so there was (in her view) no adverse impact or effect on users of the qualified audit reports which she issued, there was nothing wrong with issuing such qualified opinions, and that by issuing such qualified audit reports, she had saved her clients ‘cost and bother’.

24. The Respondent also repeatedly made the argument that by doing the work at the lowest cost possible, what she had done was in her clients’ best interests. … she [had] explained to her clients that they could opt for a qualified audit report or a clean audit report, but that the latter would entail more work and costs.

25. In relation to Complaint 1B, at the Substantive Hearing, the Respondent admitted that she did not ask to see the company’s records in the Philippines nor performed any audit work, but said that she received and relied on the reports which were produced by local accountants in the Philippines, which were only compilation reports instead of audit reports.”

14.  The Disciplinary Committee did not accept Ms Li’s defence, finding that none of her arguments amounted to valid reasons for deviating from the applicable auditing standards[7].

15.  In respect of Complaint 1C, Ms Li’s answer, as summarised by the Disciplinary Committee[8], is as follows:

“The Respondent accepted that the financial statements of the two audit clients did not contain a Statement of Cash Flows, but sought to downplay the seriousness of the breach, and argued that the financial statements still gave a true and fair view and were not misleading. The Respondent also argued that preparing Statements of Cash Flows would have increased the burden of the bookkeeper who prepared the accounts of the audit clients, and that it had been stated in her audit report that the scope of her audit work included the Income Statement, the Balance Sheet, and the Notes to the Financial Statements, and did not include the Statement of Cash Flows.”

16.  The Disciplinary Committee did not accept that the failure to comply with the applicable accounting standard was not serious in nature, or that whether such failing is serious is a matter to be judged by Ms Li.  It also did not find Ms Li’s arguments to be valid reasons justifying deviation from the applicable accounting standards[9].

17.  As for Complaint 1D, Ms Li accepted she was wrong not to provide for depreciation for land and building, but argued that[10]:

“with rising property prices, depreciation at the rate of 0% was acceptable. … ‘it had no effect on anybody’ given that the audited financial statements were prepared solely for the purposes of tax reporting to the IRD and depreciation is not tax deductible.”

18.  The Disciplinary Committee did not accept the arguments amounted to justifications for deviating from the applicable auditing standards, holding that a financial statement could not be described as complying with the Hong Kong Financial Reporting Standards (“HKFRS”) unless the financial statement complied with all the requirements under Paragraph 16 of Hong Kong Accounting Standards (“HKAS”) 1[11].

19.  The Disciplinary Committee further pointed out that Ms Li had a duty to issue audit opinions in accordance with professional standards on financial statements that she was appointed to audit, but she showed a blatant disregard for the requirements of professional standards and failed to discharge her responsibility as a practising CPA and to uphold her statutory duty as an auditor.  The Disciplinary Committee found the rationalisations and arguments she put forward reflected a lack of sufficient understanding of professional standard and a lack of professional competence, and concluded that the 1^st Complaint was established[12].   

D2.  2^nd Complaint

20.  On the 2^nd Complaint, the Complainant relied on the following particulars[13] (respectively “Complaint 2A” to “Complaint 2C”):

“(i) The Respondent did not send confirmation requests to banks and to debtors/creditors in order to save costs, in contravention of Paragraph 19 of HKSA 330.

(ii) The Respondent recorded that it was unnecessary to perform audit procedures relating to evaluation of her clients’ internal controls as required under Paragraphs 12 and 13 of HKSA 315, due to the small size of her clients.

(iii) In the case of one client, Client J, its financial statements for the period ended 31 March 2016 were prepared under HKFRS and the Respondent stated that she had performed the audit in accordance with HKSAs. However, the working papers showed that the Respondent had failed to perform adequate audit procedures in relation to the (a) evaluation of client’s internal controls and identification of assertion risks in accordance with HKSA 315, (b) risk assessment and consideration of fraud risks in accordance with the requirements of HKSA 240, (c) determination of overall materiality, performance materiality, and a clearly trivial amount in accordance with Paragraphs 10 and 11 of HKSA 320 and Paragraph 5 of HKSA 450, and (d) design and performance of substantive procedures based on the auditor’s risk assessment in accordance with Paragraphs 5, 6 and 18 of HKSA 330. The Respondent also failed to obtain sufficient appropriate audit evidence in accordance with Paragraph 6 of HKSA 500 with respect to the sales and bank balances since no third party audit evidence was obtained in relation to sales to ascertain the completeness and accuracy of the sales recorded, and there was no evidence in the working papers to support the bank balance.”

21.  In respect of Complaint 2A, Ms Li justified her failure to send confirmation requests to banks and debtors/creditors on the ground that[14]:

“(i) Based on past experience, the return rate from debtors/creditors was very low, unless the directors took the initiative to chase for responses to the requests, and since all her clients were small companies and the directors were very busy, she just wanted to save them some time and effort;

(ii) As the audited financial statements were prepared for profit tax reporting purposes, and her clients had absolutely no intention to misstate the position with respect to debtors/creditor, the risk of misstatement was low;

(iii) She dared to issue the audit reports based on the bank statements and without receiving the bank confirmations because she was confident that the bank confirmations would show nothing more than the bank statements, and she was never proven to be wrong in hindsight (she also stated ‘After all, professions are about judgment, not procedures’).”

22.  Ms Li also argued that the failure was not serious in that in cases where the audit reports were issued before she received the bank confirmations, it transpired that there was no discrepancy and no error.  She said, in future, she would send confirmation requests to debtors/creditors “unless the confirmation would do harm to the business of the company”[15]. She further claimed to have used “alternative procedures” to replace confirmation requests to creditors/debtors.  For example, for Client TD, which provided dental products to dentists, she had reviewed and checked copies of covering letters and cheques sent by the dentists in settlement of invoices, though admittedly this work could not be observed from the audit work papers[16]. 

23.  The Disciplinary Committee referred, in particular, to Ms Li’s stance in relation to audit documentation[17], which is that,

“… small practitioners like her should not be subject to the same requirements to prepare audit documentation as larger audit firms performing more complicated audits. The Respondent did not accept that the audit working papers ought to enable a third party reviewing the papers to understand how the audit had been conducted, and maintained that as everything was in her head, if anyone had any queries about how the audit had been conducted, they could simply approach her and ask her.”

24.  The Disciplinary Committee found none of Ms Li’s arguments justified her failure to send confirmation requests to banks and debtors/creditors, which was a deviation from the applicable auditing standards[18].

25.  In the case of Complaint 2B, Ms Li did not accept she had to understand and evaluate the client’s internal controls in accordance with HKSA 315 irrespective of the size of the audit client.  She argued that internal controls did not exist for companies like her clients which were “owner-managed entities”[19].     

26.  The Disciplinary Committee rejected the argument, pointing out that where clients do not have effective internal controls to address business risk relating to financial reporting objectives, HKSA 315 required the auditor to (i) consider whether the absence of such internal controls is appropriate in the circumstances or represents a significant deficiency in internal control, and (ii) take further steps to discuss with management whether business risks relevant to financial reporting objectives have been identified and how that have been addressed.  There was, however, no appropriate documentation to show Ms Li had taken any of the steps or made any enquiries required of her, which amounted to a deviation from the applicable auditing standards[20].

27.  As for Complaint 2C, Ms Li did not accept the failures identified by the Complainant (see [20(iii)] above), and argued that[21]: (i) although the risk assessment process was not documented, she had retained the information in her head; (ii) although no third party audit evidence was obtained in relation to sales, Paragraph 6 of HKSA 500 did not mandate that audit evidence of the sales had to be in the form of third party audit evidence; and (iii) despite there was no evidence in the working papers to support the bank balance, she was confident, based on her understanding of her clients, that the bank confirmations would not show anything more than what was known from the bank statements. 

28.  The Disciplinary Committee[22] noted there was no evidence in the audit working papers to show how audit procedures had been performed, and found Ms Li had failed to perform adequate audit procedures in relation to (a) risk assessment and consideration of fraud risks in accordance with the requirements of HKSA 240, and (b) design and implement overall responses to address the assessed risks of material misstatement at the financial statements level under Paragraph 5 of HKSA 330.

29.  In relation to the requirement to perform adequate audit procedures to determine the overall materiality and performance materiality, the Disciplinary Committee[23] noted the Reviewer’s finding that Ms Li had not determined the overall materiality or performance materiality for Client J.  The Disciplinary Committee further held that the requirements under Paragraph 10 of HKSA 320 to determine overall materiality and to determine materiality levels for particular classes of transactions, account balances or disclosures are cumulative and not in the alternative, such that the determination of materiality levels for particular classes of transactions, account balances or disclosures did not obviate the need to determine overall materiality, which Ms Li had failed to carry out.

30.  The Disciplinary Committee referred to the rationale for performance materiality as explained in Paragraph A12 of HKSA 320 and rejected Ms Li’s argument that the requirement was not applicable because she was a one-person operation who did all the audit work herself and there was no delegation to audit staff[24].    

31.  On the obtaining of third party audit evidence, the Disciplinary Committee held that[25]:

“60. … Paragraph 6 of HKSA 500 is a general statement which requires the auditor to design and perform audit procedures that are appropriate in the circumstances for the purpose of obtaining sufficient appropriate evidence. Clearly, what quality of audit evidence is appropriate will depend on the circumstances, and it is self-evident that, as reflected in Paragraphs A8 and A9 of HKSA 500, audit evidence is more reliable when it is obtained from independent sources outside the entity.

61. In the present case, the Respondent said that for Client J’s sales, which were in the nature of income generated by the provision of structural engineering consulting services, she had checked samples of invoices and related supporting documents, and where it was available evidence of receipt of payment. The Disciplinary Committee accepts that the Respondent did perform such work. However, there was no evidence in the working papers to support the completeness of the sales.

62. It also remains the case that there was no evidence in the working papers to support the bank balance, and the Respondent’s argument that she was entitled to rely solely on the bank statements as she was confident that the bank confirmations would confirm what was stated in the bank statements is clearly inadequate.”

32.  The Disciplinary Committee[26] concluded that Ms Li’s arguments in answer to the 2^nd Complaint illustrated her lack of awareness of professional standards and a lack of appreciation as to what her professional responsibilities are and why the standards are in place and should be adhered to.  It found Ms Li failed to maintain her professional knowledge and skill at a level required to ensure her clients received competent professional services, and was satisfied that the 2^nd Complaint was established.

D3.  3^rd Complaint

33.  On the 3^rd Complaint, the Complainant relied on the following particulars[27]:

“(i) Whilst the Respondent had put in place a Quality Control Manual (‘QCM’), the QCM did not cover all required elements as set out in Paragraph 16 of HKSQC 1[28].

(ii) In the Practice Review, deficiencies were found in the practice’s quality control system in relation to (a) monitoring review, (b) client acceptance and continuance, (c) ethical requirements, and (d) engagement performance, in breach of various requirements under HKSQC 1.

(iii) In particular, the Respondent acted as company secretary of her audit client, Client EL, when the Code only allows the auditor to hold such a position when permitted by law, and under Section 393(2) of the Companies Ordinance (Cap 622), an individual is prohibited from holding the positions of both auditor and secretary to a company.”

34.  In [68] to [70] of the Decision, the Disciplinary Committee summarised Ms Li’s arguments and set out its reasons for finding the complaint proved as follows:

“68. The Respondent did not really seek to dispute that her QCM did not cover all required elements as set out in Paragraph 16 of HKSQC 1. Her argument appeared to be that, although it would follow if the other deficiencies alleged against her were proved and that the QCM was ineffective, for the same reasons which she had given to explain those other deficiencies, the deficiencies in the Practice’s quality control system were ‘not so bad’.

69. In particular, the Respondent’s argument in relation to the instance where the Respondent had acted as company secretary of her audit client, Client EL, was specious to say the least. The Respondent’s argument was that there was no contravention of Section 393(2) of the Companies Ordinance, as the prohibition was against the same individual from being both the auditor and an officer of a company, and because of the nature of the work which she did as the company secretary of Client EL, which consisted of no more than filing an annual return each year at the Companies Registry, she could not be considered as an officer of Client EL. This is despite the fact that an officer is defined under the Companies Ordinance as including a director, a manager or company secretary of a company. The Disciplinary Committee has no hesitation in rejecting the Respondent’s argument.

70. In the premises, the Disciplinary Committee finds that the Respondent did not maintain an adequate quality control system in the Practice.”  

D4. Sanctions and costs order

35.  The Disciplinary Committee’s reasons for the sanctions imposed are encapsulated in [9] to [12], [16] and [17] of the Sanctions Decision as follows:

“9. The Respondent’s breaches were systematic in nature and reflective of the approach which the Respondent adopted with respect to her entire practice. The Respondent’s explanations showed that she deliberately adopted such an approach as she considered that all of her audit clients were small, privately held companies and hence she could avoid having to perform all the audit procedures required by the relevant accounting standards, and she also rationalised her approach by saying that it was in her clients’ interests.

10. Throughout these proceedings, the Respondent has not denied that she departed from auditing standards, but has consistently argued that what she did was not serious and that the auditing standards served no useful purpose and/or ought not to apply to the audits that she conducted. The Disciplinary Committee agrees with the Complainant that the Respondent’s attitude throughout has not only demonstrated a fundamental misconception of the role of an auditor, but also a driven determination on her part to disregard them. As the Complainant has put it, even in light of the Disciplinary Committee’s findings against her, the Respondent has demonstrated ‘a lack of self-reflection and unwillingness to accept responsibility’. That being the case, it is no surprise that despite being given the opportunity to do so, the Respondent did not advance much, if any, in the way of submissions in mitigation.

11. In her submissions on sanctions and costs, the Respondent continued to exhibit the same regrettable attitude towards her breaches as she had displayed throughout these disciplinary proceedings. Simply put, the Respondent said that she did not accept that she ought to be judged based on whether she had complied with the procedures set out in the applicable auditing standards, and that she ought only to be judged based on whether any adverse consequences could be shown to have resulted from her decisions not to follow the applicable auditing standards. The Respondent further sought to assert that auditing standards existed to cater for complicated audits where there was a high risk of misstatement of financial figures, and ought not to apply to the audits which she conducted. Although the Respondent was given the opportunity to make submissions in mitigation, she chose instead to focus her submissions on why she thought that the Disciplinary Committee ought not to have found against her on the three complaints. In one of the Respondent’s submissions, she even asserted that it was the Complainant which did not understand the relevant auditing standards, which had caused her to waste a lot of time and effort in these disciplinary proceedings.

12. The Disciplinary Committee has no hesitation in arriving at the conclusion that a lengthy period of suspension of the Respondent’s practising certificate (‘PC’) is warranted in the circumstances of the present case.

…

16. The Disciplinary Committee has taken into account the fact that any period of cancellation of the Respondent’s PC will have a serious impact on the Respondent’s livelihood. The Respondent has said that she is 55 years of age, and any sanctions will likely have the result of ending her career.

17. Nevertheless, in view of the seriousness of the breaches, and to ensure that the sanction serves the purposes of (i) protecting the public interest, (ii) deterring non-compliance with professional standards, (iii) maintaining and promoting public confidence in the profession, and (iv) upholding proper standards of conduct and performance, a cancellation of the Respondent’s PC is clearly warranted. The Complainant has submitted that the appropriate period of cancellation is a period of at least 30 months. The Complainant has also pointed out that even if the Respondent’s PC is cancelled, she would continue to be a member of the Institute and would still be able to carry out work as a professional accountant other than those only a practising member can perform ie. statutory audits. The Disciplinary Committee considers that an appropriate period of suspension is 36 months and accordingly orders such a suspension of the Respondent’s PC. In view of the suspension of the Respondent’s PC, the Disciplinary Committee does not consider it necessary to additionally reprimand the Respondent or to additionally impose a financial penalty.”

36.  The Disciplinary Committee further ordered Ms Li to pay costs in the sum of HK$150,000[29].

E.  This appeal

37.  In the Notice of Appeal (Revised) dated 6 July 2020, Ms Li raised eight general grounds of appeal, which she elaborated upon in her Skeleton Arguments lodged on 1 April 2021.  They can be broadly summarised as follows (respectively “Ground (1)” to “Ground (8)”):

(1)  The Disciplinary Committee failed to state her arguments and give reasons for rejecting them. 

(2)  Her non-compliance with the relevant auditing standards is excusable, because they are not applicable.

(3)  The Disciplinary Committee was wrong to hold that she has damaged public interest and public confidence. There was no public interests or public confidence involved as her Practice has only “26 small clients with no office”.

(4) (a)  The Complainant wrongly accused her of using the excuse that her client companies were small to avoid auditing certain account items.

(b)  The Complainant’s understanding of the relevant auditing standards was wrong and the Complaints were not justified because the auditing standards were not applicable to her Practice.

(5)  The Complainant and the Disciplinary Committee were wrong to allege or find that she violated the Companies Ordinance by acting as her client’s auditor and company secretary at the same time.

(6)  The Complainant was wrong to allege that she failed to include a Statement of Cash Flows in the financial statements of Client EI and Client J since her scope of audit did not include the Statement of Cash Flow.

(7)  The Complainant was wrong to complain that she failed to provide for depreciation on the property of Client EI when such failure “had no effect on anyone, including the Inland Revenue Department”, and she had stated in her audit reports that the financial statements were free from material misstatement.

(8)  The Complainant was wrong to complain that her monitoring review was ineffective, because self-monitoring was sufficient and it was not prohibited by the auditing standards unless proved to be ineffective.

38.  Miss Mak, appearing for the Complainant, has in her written submission helpfully grouped the grounds of appeal and Ms Li’s written submissions and related them to the particulars of the Complaints.  Ms Li has no disagreement to the correlations, which we will adopt in discussing the grounds of appeal.

E.   Our reasons for decision

E1.  Applicable legal principles

39.  Before addressing the grounds of appeal, we would first set out the well-established general principles which the Court applies in considering an appeal against the decision of a professional body. 

40.  In Tong Pon Wah v Hong Kong Society of Accountants [1998] 2 HKLRD 427 at 439 to 440[30], it was held that the Court can only reverse a decision of the disciplinary committee on substantive grounds if it is satisfied that no disciplinary committee properly directing itself on the material before it could reasonably have come to the conclusion to which it did come.  It was further pointed out that (at 440D):   

“Every professional body is entitled to apply its own professional judgment to a case in which one of its members is called on to justify his conduct in (allegedly) failing to observe a standard or guideline laid down by that professional body for the protection of those dealing with members of that professional body. It is not, in my judgment, for this court to second-guess the professional judgment of a Disciplinary Committee except where it can be seen that it has plainly misread the evidence and come to a conclusion which is contrary to the evidence or is otherwise plainly wrong.”

41.  As to appeal against sanctions imposed by a specialist tribunal whose members consist of members of the same profession, such as the Disciplinary Committee in this case, the Court’s approach was explained by Lam VP (as Lam PJ then was) in Registrar of the Hong Kong Institute of Certified Public Accountants v Leung Kam Man Victor, CACV 37/2016 (17 January 2017), at [11] to [16].  In summary, the disciplinary committee has a margin of discretion in deciding the appropriate sanction for maintaining the standards of the profession, and the court will not intervene so long as the sanction imposed falls within the reasonable range of options and is not plainly wrong.

E2. General observations

42.  It is evident from the Notice of Appeal (Revised) and her submissions that the thrust of Ms Li’s challenge in this appeal is the merits of the complaints lodged against her, instead of the findings made by the Disciplinary Committee.  In this regard, the core plank of Ms Li’s arguments, both before the Disciplinary Committee and in this appeal, is that the applicable auditing standards do not apply, or should not be applied, to the Practice or its audit clients, either due to the situation of the Practice (which only had 26 clients with no audit staff), or because of the nature or situation of her clients (which are small and privately held companies), or the purpose for which the financial statements were prepared (such as they were merely for making a tax return).  

43.  These arguments are misguided. As Yuen JA pointed out in HKICPA v Cheung Yiu Hung [2018] HKCA 463 at [34]:

“… whilst a failure to observe professional standards may be made more egregious when a public company is involved, it cannot be a reason for letting professional standards slip that an accountant’s firm was a small one or his clients were small companies. An accountant is accorded the privilege of practice by virtue of membership of his professional body. For that privilege, he has to comply with its standards, whether or not he considers them to be too demanding for him, and whether his firm is big or small, and irrespective of the status of his clients.”

44.  It is also relevant to note that the auditor’s reports that gave rise to the Complaints invariably stated that Ms Li conducted the audit in accordance with the HKSA and, in some instances, with reference to the Practice Note 900 (Revised) Audit of Financial Statements Prepared in Accordance with the Small and Medium-Sized Entity Financial Reporting Standard issued by the Institute[31].  Implicitly, Ms Li had accepted that the HKSA and other relevant auditing standards apply to the audit work in question.

E3. Ground (1)

45.  Under Ground (1), Ms Li complains that the Disciplinary Committee did not have regard to her arguments, made no mention of them in its decisions, and did not give reasons for rejecting them.  It is said that the Decision “did not even contain one word of comment on my arguments”^[32].   In our view, this ground is plainly not made out on the facts. 

46.  Firstly, the Decision as well as the Sanctions Decision have comprehensively addressed Ms Li’s arguments in relation to each of the Complaints.  Her arguments were set out in the Decisions at [22] to [25], [28] and [32] for the 1^st Complaint, at [43] to [48], [50], [53], [59] and [61] for the 2^nd Complaint, and at [68] and [69] for the 3^rd Complaint.   

47.  Secondly, the Disciplinary Committee had given its findings and reasons in respect of each of the Complaints in the Decision at [26], [29], [30] and [33] to [39] for the 1^st Complaint, at [49], [51] to [52], [54], [57] and [59] to [66] for the 2^nd Complaint and at [69] to [71] for the 3^rd Complaint.   Its reasons for the sanctions and costs order are further set out in [9] to [12] and [16] to [19] of the Sanctions Decision. 

48.  Ms Li also questioned whether members of the Disciplinary Committee had met at all to discuss her case after the disciplinary hearing. She prayed in aid the fact that the signatures of the committee members were contained in separate signature pages of the Reasons for Decision.  We do not accept the challenge.  The fact that the members signed on separate signature page only reflects the signing arrangement of the Disciplinary Committee (which comprised five members including the Chairman, and not four members as contended by Ms Li).  It is a matter of logistics for the Institute and does not warrant the criticism or challenge advanced by Ms Li.  There is also no basis for her attempt to challenge the expertise of the Disciplinary Committee, when, as admitted at the hearing before us, she does not even know the background of some of the Committee members.

49.  In short, Ground (1) has no merits.

E4. Ground (2)

50.  In her Skeleton Arguments Ms Li raised five issues under Ground (2), which we will deal with in turn.

51.  Under the first issue, Ms Li repeats her arguments made to the Disciplinary Committee^[33], namely, she did not strictly follow the auditing standards because they are only applicable to “big and complicated companies” where the directors are not the shareholders, and her non-compliance has caused no consequence to any persons.      

52.  The Disciplinary Committee had considered and fully addressed these arguments^[34].  In particular, the Disciplinary Committee had correctly referred to HKICPA v Cheung Yiu Hung, supra, at [34] (see section E2 above), and decided that the size of an accountant’s practice or of his clients was irrelevant; the fact that it was a small practice or the client companies were small was not a valid reason for not observing professional accounting standards. 

53.  Ms Li also refers to paragraph 21 of the Complainant’s Case, and argues there is no definition of “small/smaller” entities in all the HKSAs^[35].  The relevant part of the Complainant’s Case[36] stated that:

“As stated in HKSA 200, an auditor must comply with all HKSAs relevant to the audit and where the circumstances addressed by the HKSA exist. Where applicable, the HKSA provides guidance on considerations specific to small sized entities. …” (emphasis added)

54.  We do not accept the argument.  It is not open to Ms Li, on the one hand, to argue there is no definition of “small/smaller” entities in the auditing standards, while, at the same time, seek to justify her non-compliance with the auditing standards on the basis that her clients are small, privately held companies.  She cannot blow hot and cold.  In any event, it hardly justifies the deviation from the auditing standards.

55.  The second issue under Ground (2) relates to Complaints 1A and 1B.  Ms Li argues that she did not comply with the relevant auditing standards because the directors of her clients were also the shareholders of the companies, and the shareholders did not need the financial statements to understand their company.  She also reiterates that her qualified auditor’s reports would have no effect on the shareholders and no other users would rely on them.  She claims that by issuing qualified auditor’s reports, she was helping her clients to save costs^[37].

56.  These arguments had been considered by the Disciplinary Committee, but were found not to constitute valid reasons justifying Ms Li’s conduct in issuing qualified opinions without performing the necessary audit procedures to support such opinions as required under Paragraphs 11 to 13 of HKSA 705.  As we have pointed out (see section E2 above), the nature or situation of the audit clients do not justify a departure from the professional standard or non-compliance with auditing standards. 

57.  At the hearing before us, Ms Li also made the point that there was no need for her to comply with HKSA 705 because the requirements only applied to a limitation on the scope of the audit imposed by the directors, not shareholders. She said her audit reports were prepared for the shareholders, so there was nothing wrong with them.  

58.  In the first place, this is a new point, which is neither contained in the Notice of Appeal (Revised) nor mentioned in the Skeleton Arguments.  It is not open to Ms Li to raise a new point in oral submission.  In any event, this argument cannot stand.  It is plain from Paragraphs 11 to 13 of HKSA 705[38] that the application of the requirements is not confined to the imposition of a limitation on the scope of the audit by directors, as contended by Ms Li.   

59.  The third issue under Ground (2) relates to Complaint 2C.   Ms Li’s answer to the complaint is that she had performed the risk assessment in relation to Client J, but she did not do any documentation, which she argued was not necessary as she was able to “retain the risks identified and considerations in my brain”, and also because the directors of her client are professionals and would have no intention to misstate the financial statements.  These arguments had been rejected by the Disciplinary Committee for the reasons given at [53(i)] and [54] of the Decision. 

60.  In this appeal, Ms Li argues^[39] that she was entitled to exercise her “professional judgment” to decide the manner in which documentation was required, relying on Paragraphs A144 to A147 of HKSA 315.    

61.  In our view, this argument and the reliance on A144 to 147 of HKSA 315 are misplaced.  It is true that Paragraph A144 of HKSA 315^[40] provides that the manner in which the requirements of Paragraph 32 of HKSA 315 are documented is for the auditor to determine, using professional judgment.  However, Paragraph 32(c) ^[41] specifically obliges the auditor to include in the audit documentation “the identified and assessed risks of material misstatement at the financial statement level and at the assertion level as required by Paragraph 25 of HKSA 315”. 

62.  As for A145 of HKSA 315[42], it states that:

“For entities that have uncomplicated businesses and processes relevant to financial reporting, the documentation may be simple in form and relatively brief. It is not necessary to document the entirety of the auditor’s understanding of the entity and matters related to it. Key elements of understanding documented by the auditor include those on which the auditor based the assessment of the risks of material misstatement.”

Plainly, it does not support Ms Li’s argument that the audit documentation did not have to include work on risks assessment.  

63.  In any event, this is not a valid ground to impugn the finding and conclusion of the Disciplinary Committee on Complaint 2C.  All along, Ms Li has not disputed that she did not document the risk assessment process^[43].  The Disciplinary Committee was therefore entitled to find there was no evidence in the audit working papers to show she had performed adequate audit procedures in relation to risk assessment and consideration of fraud risks in accordance with the requirements of HKSA 240.  There is no basis for the Court to intervene with this finding.

64.  The fourth issue relates to Complaints 2A and 2C.  They concern Ms Li’s failure to obtain bank confirmations, in contravention of Paragraph 19 of HKSA 330, and in issuing the auditor’s report before sending out bank confirmation when there was no other evidence in the working paper to support the bank balance.  Ms Li’s case is that her clients gave her the “confidence that other available bank documents were good enough” and she was never proven wrong^[44].

65.  The Disciplinary Committee did not accept this justified a deviation from the applicable auditing standards, holding that reliance on bank statements alone was inadequate (see [43(iii)], [49], [53(iii)] and [62] of the Decision).  In this appeal, other than repeating the argument, Ms Li has not shown in what way the Disciplinary Committee had erred in its decision. We see no basis to intervene.

66.  The fifth issue relates to Complaint 2A, which concerns the failure to send confirmations to trade debtors/creditors.  Both before the Disciplinary Committee and in this appeal, Ms Li justifies her conduct on the basis that the rate of return from debtors and creditors was low, chasing for their confirmation was a burden on the directors, and the “alternative procedures” adopted are, in her professional judgment, already good enough^[45].  The Disciplinary Committee did not accept they were valid justifications for the deviation from the applicable auditing standards.  Ms Li has not pointed to any errors in the Disciplinary Committee’s finding, and we do not see any ground to intervene.

67.  In respect of the point about “alternative procedures”, Ms Li relies, in this appeal, on her submissions to the Disciplinary Committee, in which she stated “Based on above, I justified that if enough alternative procedures are done, they are able to replace the function of debtors/creditors’ confirmation.”[46] We note, however, it is the Complainant’s case that there was no evidence of alternative procedures being carried out to address the audit objects of debtor and creditor confirmations^[47].  Ms Li has not been able to challenge this.  In fact, she admitted at the disciplinary hearing and also before this Court that she did not do enough documentation.  Her submission is no more than a mere assertion and does not serve to advance her case. The Disciplinary Committee was entitled to find that the alternative procedures claimed to have been done could not be observed from the audit work papers and there was no justification for her non-compliance with the auditing standards.  

68.  For the reasons set out above, Ground (2) has no merits.

E5.   Ground (3)

69.  The thrust of Ms Li’s argument under Ground (3) is that no public interest or public confidence was involved given that the Practice only had 26 small clients with no audit staff.  

70.  We have no hesitation in rejecting this ground.  As the Disciplinary Committee correctly held (at [39] of the Decision), the public has an interest in seeing that professional standards are followed and standards are maintained, and that failure to adhere to professional standards will have a detrimental effect on public confidence in the profession as a whole.  The small number of clients and the operation size of the Practice are entirely irrelevant. 

E6.  Ground (4)(a)

71.  Under Ground (4)(a), Ms Li complains that the Complainant wrongly accused her of using the small size of her client companies as an excuse to avoid some of the auditing work.  This is, as Miss Mak submits, a mischaracterization of the Complainant’s case and a distortion of the Disciplinary Committee’s reasons for finding the Complaints established.

72.  The Complainant’s case, in general, is that Ms Li failed to carry out various necessary audit procedures as required by the auditing standards.  In her defence, Ms Li had more than once referred to her clients being small companies, which had facilitated her understanding of their businesses and was also the reason why the auditing standards did not or should not apply.  This can be seen from her Skeleton Arguments where she made references to the Respondent’s Case^[48] and the Respondent’s Reply to the Complainant’s Reply^[49].  The Disciplinary Committee had rejected her defence, and held that the small size of the Practice or of its audit clients is not a valid reason not to observe the auditing standards.  As we have already observed (at section E2), the Disciplinary Committee’s decision is clearly correct.  

73.  Ground (4)(a) cannot stand. 

E7. Ground (4)(b)

74.  Ground (4)(b) encompasses five issues. The first to fourth issues all relate to Complaint 2C, which concerns the failure to obtain third party evidence on the completeness of the sales record of Client J.  

75.  Under the second issue, Ms Li argues that the Complainant wrongly understood the relevant requirements in that Paragraph 6 of HKSA 500 does not require the audit evidence to be in the form of third party evidence.  She also contends that it is unlikely that the company would hide its receipts and payments from the bank, and there was a low risk of misstatement since the professional reputation of the company was at stake.

76.  Paragraph 6 of the HKSA 500 provides that^[50]:

“The auditor shall design and perform audit procedures that are appropriate in the circumstances for the purpose of obtaining sufficient appropriate audit evidence”.

77.  The Complainant’s case is that Ms Li failed to provide evidence showing audit work had been performed to ascertain the completeness and accuracy of the sales record in relation to Client J, especially when she claimed that there was no third party evidence.  The Complainant pointed out that the working papers did not show how she could be satisfied that sufficient evidence had been obtained, in accordance with HKSA 500, to substantiate the accuracy and genuineness of sales in the absence of third party evidence^[51].

78.  The Disciplinary Committee found, and Ms Li does not challenge, that there was no evidence in the working papers to support the completeness of the sales.  It took the view[52] that “what quality of audit evidence is appropriate will depend on the circumstances, and it is self-evident that, as reflected in Paragraphs A8 and A9 of HKSA 500, audit evidence is more reliable when it is obtained from independent sources outside the entity” ^[53].   

79.  Plainly, what is sufficient and appropriate audit evidence is a matter of professional assessment for the Disciplinary Committee.  In the case of Client J, the Disciplinary Committee had regard to the fact that there was no evidence in the working papers to support the completeness of the sales, notwithstanding Ms Li’s contention that she had checked samples of invoices and related supporting documents and, where available, evidence of receipt of payment.  It further took note of the fact that there was no evidence in the working papers to support the bank balance. On these bases, the Disciplinary Committee concluded that Ms Li had deviated from the applicable auditing standards and found Complaint 2C proved. 

80.  In our view, the Disciplinary Committee’s finding and conclusion are well justified for the reasons it gave. In this appeal, Ms Li has not been able to identify any basis to challenge the Disciplinary Committee’s finding and conclusion.  There is no basis for us to interfere with the Disciplinary Committee’s conclusion.

81.  Under the second issue, Ms Li complains that the Complainant’s understanding on the need to establish “clearly trivial amount” was wrong, as it had mixed up the requirements in HKSA 450 with those in HKSA 320^[54]. In essence, she contends that while determination of materiality is prescribed by HKSA 320, “trivial amount” appears in HKSA 450, which only comes into place after audit work has been carried out and misstatements have been found; hence “trivial amounts” should not be included as one of the materiality levels to be determined[55].

82.  This point is in fact irrelevant to the determination of Complaint 2C.   The Disciplinary Committee accepted the Complainant’s finding that she had not determined the overall materiality or performance materiality for Client J, and concluded there was no evidence in the working papers to show how she performed the audit procedures as well as to support the completeness of the sales and the bank balance (see [53] to [63] of the Decision).  On these findings, the Disciplinary Committee was satisfied that Complaint 2C was made out.  Ms Li has not shown that the Disciplinary Committee had misread the evidence or that its conclusion was not supported by, or was contrary to, the evidence, or was otherwise plainly wrong.  There is no basis for the Court to intervene with the finding and decision made by the Disciplinary Committee on Compliant 2C. 

83.  In any event, Ms Li’s complaint that the Complainant had misunderstood the requirements of Paragraph 5 of HKSA 450 is incorrect.  It is true that Paragraph 5[56] only states that “The auditor shall accumulate misstatements identified during the audit, other than those that are clearly trivial.”  However, Paragraph 15(a)[57] also provides (in the context of Paragraph 5) that the auditor shall include in the audit documentation “the amount below which misstatements would be regarded as clearly trivial.”  Further, Paragraph A2a[58] states that “The auditor may designate an amount below which misstatements of amounts in the individual statements would be clearly trivial, and would not need to be accumulated because the auditor expects that the accumulation of such amounts clearly would not have a material effect on the financial statements.”  Reading all these provisions together, the Complainant was clearly right in stating[59] that an auditor was required to establish a clearly trivial amount for the purpose of misstatements identified during the audit and that documentation of such information was required.  It also follows that the Complainant was justified in saying that the working papers did not show that a clearly trivial amount had been established. 

84.  The third and fourth issues can be dealt with together.  In summary, Ms Li says that the complaint that she had not determined overall materiality or performance materiality for Client J is not justified because the relevant auditing standards (i.e. Paragraphs 10 and 11 of HKSA 320) are not applicable^[60].  It is argued that overall materiality is not applicable and serves no purpose since she was fully aware of all the information when planning the audit of Client J.  It is also said that performance materiality is not applicable because she had no staff.

85.  The Disciplinary Committee[61] did not agree that the fact that the Practice was a one-person operation and there was no delegation to audit staff was a justification for not determining performance materiality.  It also referred to Paragraph A12 of HKSA 320, which explained the rationale for performance materiality to be that: “Planning the audit solely to detect individually material misstatements overlooks the fact that the aggregate of individually immaterial misstatements may cause the financial statements to be materially misstated”.  The Disciplinary Committee accordingly held that the requirements under Paragraph 10 of HKSA 320 to determine overall materiality and to determine materiality levels for particular classes of transactions, account balances or disclosures are cumulative, and that even though Ms Li had determined material levels for particular classes of transactions, account balances or disclosures, it did not obviate the need to determine overall materiality.      

86.  In this appeal, Ms Li only repeats her arguments, but has not really engaged the reasons given by the Disciplinary Committee or pointed to any error in them.  We see no basis for disagreeing with the Disciplinary Committee’s decision on the interpretation and application of HKSA 320.   

87.  The fifth issue under Ground (4)(b) relates to Complaint 2B, which concerns the failure to evaluate the clients’ internal controls.  Ms Li’s argument before the Disciplinary Committee and in this appeal is that the relevant auditing standards (i.e. Paragraphs 12 and 13 of HKSA 315) should not be applied.  This is because for “owner-managed entities” or tiny companies like her audit clients, it is not possible for an auditor to test and document internal control, and it is also not necessary to perform audit procedures to test internal control[62].

88.  The Disciplinary Committee (at [51] of the Decision) acknowledged that there may be situations where the client entity has no effective internal controls to address business risks relating to financial reporting objectives, but pointed out that in such cases, HKSA 315 required the auditor to take further steps to address the business risks[63]. The Disciplinary Committee found there was no appropriate documentation to show Ms Li had taken such steps or made enquiries to address the heightened risk of misstatement, and concluded that she had deviated from the applicable auditing standards.

89.  In an attempt to assail those findings, Ms Li argues that an evaluation of internal control is not absolutely necessary as illustrated in A18 of HKSA 330, so long as the auditor does not count on reliance on internal control to reduce the substantive test^[64].

90.  A18 of HKSA 330 is about designing further audit procedures to address assessed risks of material misstatement and whether audit evidence should be obtained to test the operating effectiveness of the relevant controls.  It states:

“In the case of very small entities, there may not be many control activities that could be identified by the auditor, or the extent to which their existence or operation have been documented by the entity may be limited. In such cases, it may be more efficient for the auditor to perform further audit procedures that are primarily substantive procedures. In some rare cases, however, the absence of control activities or of other components of control may make it impossible to obtain sufficient appropriate audit evidence.”

91.  We agree with Miss Mak that A18 of HKSA 330 is irrelevant and Ms Li’s attempt to rely on the auditing standard on the testing of controls in HKSA 330 is misplaced.  This is because HKSA 315 requires an auditor to understand and evaluate the internal controls regardless of whether testing of controls were to be performed. There is no exemption under HKSA 315 such that evaluation of internal controls may be dispensed with for small companies.  The Disciplinary Committee has rightly rejected Ms Li’s arguments and found that Complaint 2B has been proven.

92.  For the above reasons, Ground (4)(b) has no merits.

E8. Ground (5)

93.  Ground (5) relates to paragraph (iii) of the particulars of the 3^rd Complaint, which concerns Ms Li acting as the company secretary of Client EL in contravention of section 393(2) of the Companies Ordinance.   Ms Li disputes she had violated the Companies Ordinance by acting as the auditor and company secretary of Client EL at the same time.  She argues that she only filed an annual return for the company to the Companies Registry every year and had done nothing else.

94.  Section 393(2)(a) of the Companies Ordinance provides that a person who is an officer or employee of a company is disqualified for appointment as auditor of the company.  Section 2 defines “officer” to include a company secretary.  Contrary to Ms Li’s submission[65], paragraph (iii) of the particulars of the 3^rd Complaint correctly stated that an individual is prohibited from holding the positions of both auditor and company secretary.  Ms Li’s argument that she could not be regarded as an “officer” of Client EL because she only filed annual returns for the company cannot stand as a matter of law as the nature of the work she performed as a company secretary is irrelevant.  Paragraph (iii) of the particulars of the 3^rd Complaint is clearly justified and the Disciplinary Committee did not err in finding this aspect of the 3^rd Complaint proved.

E9. Ground (6)

95.  Ground (6) relates to Complaint 1C, which concerns failure to contain a Statement of Cash Flows in the financial statements of Client EI and Client J, as required by Paragraph 1 of HKSA 7.  Both before the Disciplinary Committee and in this appeal, Ms Li argues that she had stated in her audit reports that her scope of audit for the two clients did not include Statement of Cash Flows.  She also argues on appeal that the Complainant did not give any reasons why the Statement of Cash Flows must be included[66].

96.  Paragraph 1 of HKAS 7^[67] requires an entity to prepare a statement of cash flows in accordance with the requirements of HKAS 7, and to “present it as an integral part of its financial statements”.  It is thus clear that the inclusion of a statement of cash flows in the financial statement is mandatory. This was explained by the Complainant in its Reply^[68].

97.  Ground (6) plainly has no merits. 

E10.  Ground (7)

98.  Under Ground (7) which relates to Complaint 1D, Ms Li defends her failure to provide for depreciation on the property of Client EI (in contravention of HKAS 40^[69]) on the ground that the audited financial statement was prepared for tax reporting purpose, and her non-compliance had no effect on anyone, including the Inland Revenue Department^[70].

99.  The Disciplinary Committee did not accept this justified deviation from the applicable accounting standard, pointing out that under Paragraph 16 of HKAS 1, an entity shall not describe financial statements as complying with HKFRS unless they comply with all the requirements of HKFRS. 

100.  Ms Li seeks to argue on appeal that she had stated in the financial statements that there was no material misstatement, relying on a previous audited financial statement prepared by her^[71].  The audited financial statement she refers to, however, concerns Client GW whereas this complaint concerns Client EI.  In any event, we fail to see the relevance of this point. 

101.  In our view, Ms Li has failed to identify any error in the Disciplinary Committee’s reasoning in rejecting her argument and in finding Complaint 1D established.  This ground has no merits.

E11.  Ground (8)

102.  Ground (8) relates to paragraphs (i) and (ii) of the particulars of the 3^rd Complaint.  They concern deficiencies in the Quality Control Manual (QCM) and the quality control system of the Practice, which amount to breach of the requirements in HKSQC 1^[72].  In respect of the QCM, Ms Li appears to have accepted that it did not cover the elements required by Paragraph 16 of HKSQC 1, and that it would be ineffective if the other complaints against her were proved.  As for the Practice’s quality control system, her stance is that the deficiencies were not so bad and that self-monitoring was sufficient unless it was proved to be ineffective^[73].

103.  In light of the Disciplinary Committee’s finding that all the complaints were made out, and our rejection of the other grounds of appeal, this ground of appeal must fail.  The Disciplinary Committee is clearly entitled to hold that the QCM and the Practice’s quality control system were deficient.

104.  Apart from the grounds of appeal and arguments discussed above, Ms Li has also raised various minor points in her written and oral submissions.  We do not consider it necessary to specifically deal with them in this judgment, save to mention that we do not consider they give rise to any valid grounds of appeal.  In all, we are not satisfied that any of the grounds raised by Ms Li affords a basis for this Court to interfere with the Disciplinary Committee’s finding and decision on the Complaints.   

E12.  The Sanctions Decision

105.  Ms Li has not advanced any ground to challenge the sanctions and orders made by the Disciplinary Committee.  The Notice of Appeal (Revised) has made isolated references to “heavy sanctions” being imposed on her.  For completeness sake, Miss Mak has submitted in her skeleton submissions that the sanctions were warranted.  We do not find it necessary to examine or discuss the sanctions imposed by the Disciplinary Committee, given that Ms Li’s grounds of appeal do not specifically challenge the correctness or propriety of them. 

E13.  Conclusion on the appeal

106.  For the reasons given above, we dismiss this appeal. 

F.  Costs

107.  The Complainant asks that its costs be paid by Ms Li.  It further submits that the costs should be awarded on indemnity basis on the ground that: (1) the appeal is entirely hopeless and devoid of merit, and the extraordinary submissions of Ms Li show a fundamental disregard of the nature of an audit opinion and have put her in a dim light professionally; and (2) the unreasonable conduct of Ms Li, including the prolix and unfocused nature of the original Notice of Appeal and her requests to include extensive documents in the appeal bundles, which has unduly delayed the progress of this appeal.  Reliance is placed on this Court’s decision in Lie Han Ji v The Registrar of the Hong Kong Institute of the Certified Public Accountants (unreported)CACV 265/2009, 24 April 2012, at [10], [12] to [14].

108.  We are inclined to think that the usual rule of costs follow the event should apply.  We also see the force of the Complainant’s submissions on indemnity costs.  However, as Ms Li has not made submissions on costs, we would make a costs order nisi that the Respondent pays the Complainant the costs of this appeal on indemnity basis, to be taxed if not agreed. 

109.  Any party who wishes to vary the costs order nisi shall, within 14 days from the handing down of this judgment, apply in writing setting out the grounds in support of the application.  The other party may within 14 days thereafter provide written response to the application.  The Court will then deal with the application on paper without an oral hearing.  The costs order nisi shall become absolute if no application to vary is made within the time stipulated.