HKSA

1. HKSA QP Case Competition Team 28 HKSA Prospective Students Society Qualification Programme Case Analysis Competition 2002 Presented by: The Chinese University of Hong Kong Chris Lo Colin Lau Raymond Chan Nicole Ng HKSA QP Case Competition Team 28

2. HKSA QP Case Competition Team 28 AGENDA • Background • Ethical Issue • Action & Consequence • Recommendation • Conclusion HKSA QP Case Competition Team 28

3. HKSA QP Case Competition Team 28 Background Background Ethical Issue Action & Consequence Recommendation Conclusion

4. ? ? ? ? ? HKSA QP Case Competition Team 28 Ethical Issue Ethical Issue Background Action & Consequence Recommendation Conclusion • Auditors’ Responsibility to Fraud • SAS 110 • Integrity, Objectivity and Independence • Statement 1.203 • Going Concern • SAS 130 Personal Loyalty

5. Background Ethical Issue Recommendation Conclusion HKSA QP Case Competition Team 28 Action & Consequence Action & Consequence Accepts Alfred’s request Rejects Alfred’s request

6. The Profession & the Society are hurt James • Get good evaluation & further promotion • Be found guilty HKSA QP Case Competition Team 28 Accepts Alfred’s request A&P • Keep good relationship with Beta • Likely be sued by investors Beta • Get listed on GEM • Face risk of bubbles burst Beta’s potential investors • Likely discover hidden information

7. Background Ethical Issue Recommendation Conclusion HKSA QP Case Competition Team 28 Action & Consequence Action & Consequence Accepts Alfred’s request Rejects Alfred’s request

8. The Profession & the Society HKSA QP Case Competition Team 28 Rejects Alfred’s request A&P • Lose client • Reduce risk of being sued by stockholders Beta • Approach other auditors (opinion shopping) James • Can’t keep friendship • Not being found criminal guilty Beta’s potential investors • The general confidences of investors are kept

9. Recommendation Recommendation Ethical Issue Action & Consequence Conclusion HKSA QP Case Competition Team 28 Recommendation • Emphasize on: • Conducting communication • Insisting on our professional conduct • Three Phases: • Phase I – Communication • Phase II – Insistence on profession • Phase III – Withdrawal from the engagement

10. Continue the audit procedures Accept Not Accept Communicate with clients explain with reasons Follow the request and Do not disclose the fact Reject the request of Alfred Phase II Risk of snowball effects Masking the truth is not equal to solving the problem Disguise the fact now >> problem accumulate Accumulated problem will explode sooner or later and lead to an uncontrollable financial disaster. Reputation of the firm If public discover that the statements are not presented in a true and fair way, they will lose their confidence on the company Reputation is important for long term Suitability of IPO Think about the current economic situation of HK Think about the cost of IPO Advise Alfred to think about other ways to collect fund Phase I

11. Loss one Customer now, but earn good reputation in long term Continue the audit procedures Not Accept Accept Insist on Profession Seek advice fromseniors and professional bodies throughout the whole process, Withdrawal from the engagement Phase III Phase II

12. Background Ethical Issue Action & Consequence Recommendation HKSA QP Case Competition Team 28 Conclusion Conclusion • Whistle blower • Recovery of Investors’ Confidence

13. HKSA QP Case Competition Team 28 Q&A HKSA QP Case Competition Team 28 HKSA QP Case Competition Team 28

14. HKSA QP Case Competition Team 28 Thank You HKSA QP Case Competition Team 28