AFRRT hands down its first review of a disciplinary decision of the AFRC

On 21 May 2025, the Accounting and Financial Reporting Review Tribunal (AFRRT) handed down its first Determination of a review application made by regulatees against a disciplinary decision of the Accounting and Financial Reporting Council (AFRC) in AFRRT-3-2024 (Determination). The AFRRT confirmed the AFRC’s disciplinary decision and awarded costs to the AFRC. 

Background

From 1999 to 2021, the Auditors audited 5 private companies (the Companies) while Chiang, the sole proprietor of the Firm, and members of his family held directorships and/or had direct financial interests in the Companies.[1]

Accordingly, the AFRC were of the view that the Auditors had breached the relevant independence requirements of an auditor and failed to devise appropriate internal control procedures to prevent such breaches. The Auditors’ failure to observe, maintain or otherwise apply the professional standards[2] relevant to, among other things, independence constituted “professional irregularities” under s.3B(1)(c) of the Accounting and Financial Reporting Council Ordinance (Cap.588) (AFRCO), and were therefore liable for “CPA misconduct” under s.37AA(1) of the AFRCO.

The AFRC imposed the following sanctions:

Against Chiang: a.  Public reprimand; b.  Pecuniary penalty of HK$250,000; c.   Order that his registration be suspended for a period of 3 years; d.  Order that his practising certificate be cancelled; e.  Order that he not be issued with a practising certificate for a period of 3 years; and f.   Order that he bear the costs and expenses of, and incidental to, the investigation.

Against the Firm: a.  Public reprimand; b.  Pecuniary penalty of HK$250,000; c.   Order that the Firm’s registration be suspended for a period of 3 years; and d.  Order that the Firm pays the costs and expenses of, and incidental to, the investigation.

The review application

The Auditors only sought to review the following sanctions:

• Suspension of registration of the Auditors for 3 years; and
• Cancellation and debarring the issuance of a practising certificate to Chiang for 3 years.

(collectively, Exclusionary Sanctions)

The Auditors did not seek to dispute their liability for CPA misconduct by virtue of professional irregularity within the meaning of s.3B of the AFRCO, or the sanctions of public reprimand, pecuniary penalty, and costs order.  

The grounds of review were:

• Ground 1: the Exclusionary Sanctions are wrong in principle in that the AFRC (a) had failed to recognize that the imposing of sanctions is quasi-criminal in nature, (b) was obliged to follow principles derived from criminal sentencing, including the principle that the applicable sanction should be those prevailing at the time of breach, (c) failed to apply the 2017 HKICPA Guideline;
• Ground 2: AFRC failed to give clear and cogent reasons for the Exclusionary Sanctions.
• Ground 3: The Exclusionary Sanctions are unduly harsh and manifestly excessive.
• Ground 4: The Exclusionary Sanctions were disproportionate.  

The AFRRT’s findings – key takeaways

On Ground 1

The Auditors contended that principles analogous to those applied in criminal proceedings are applicable as a matter of fairness as enshrined in Article 10 of the Hong Kong Bill of Rights. On this basis, it was argued that the criminal sentencing principle that an offender should be sentenced according to the practice prevailing at the time of the offence/breach would be applicable – thus in this case, the 2017 HKICPA Guideline should be applied.   

In rejecting this argument, the AFRRT’s observations included:

• There is no basis to say that the legislature intended a disciplinary charge under the AFRCO to be criminal in nature. Section 37T(5) of the AFRCO expressly provides that the standard of proof applicable to a review application is that of the civil standard.
• Disciplinary proceedings are non-penal / non-criminal in nature. The established principle is that proceedings do not involve the determination of criminal charge unless they are capable of resulting in the imposition of a penalty “by way of punishment.”[3] The purpose of disciplinary proceedings and imposition of sanctions is primarily preventive in nature, in order to (i) uphold proper standards of conduct amongst regulatees, (ii) maintain and promote public confidence in the profession, (iii) protect the public, and (iv) deter similar misconduct.
• There is no reason why the imposition of a sanction must follow the adoption of a “starting point” followed consideration of aggravating or mitigating factors.
• There is nothing inherently objectionable in a person being disciplined in accordance with the guidelines in force at the time of the sanctions because such sanctions are primarily preventive and protective (vs. punitive) in nature. Therefore, the appropriate sanction must be determined by reference to what is necessary to uphold the prevailing professional standards.

On Ground 2

• The AFRRT did not find it necessary to consider the question of whether AFRC had failed to give adequate reasons for imposing the Exclusionary Sanctions in view of the fact the Tribunal was to approach the question of sanctions de novo (as if it were the original decision maker).
• Nonetheless, the Tribunal commented that it is not right to say that AFRC had not given adequate reasons.

On Grounds 3 and 4

The AFRRT took the view that the imposition of the Exclusionary Sanctions was both correct in principle and justified on the facts of this case. The Tribunal observed, among other things, that:

• The requirement of independence of an auditor is of fundamental importance, which is intended to ensure that financial information of a company gives a true and fair view of the company’s financial position.
• It is important to maintain public confidence that the independence requirements of auditors are strictly upheld and that audited financial statements are reliable and seen to be reliable.
• Sentences imposed by disciplinary bodies are not designed as precedents, and there is only limited weight that can be attached to the outcome of any particular disciplinary sanction imposed on a different respondent on a different set of facts.[4]

Lessons on the review procedure

Review application to AFRRT

A regulatee may, by way of a written application setting out the relevant grounds, within 21 days[5] running from the day after the AFRC issues the Decision Notice to the regulatee (Specified Period),  apply to the Tribunal for a review of the Decision. If a regulatee requires more time to make a review application, the regulatee may apply to the Tribunal for an extension of time showing good cause.[6]

Extension of time to make a review application

In this Review Application, the AFRRT considered the conditions enabling it to grant an extension of time. Three conditions need to be met before the Tribunal may exercise its discretion to grant a time extension pursuant to s.37R of the AFRCO, namely:

• a written application by applicant is made within the Specified Period;
• the Tribunal has given both the applicant and the decision authority (i.e. AFRC in this case) a reasonable opportunity to be heard; and
• the Tribunal is satisfied that there is a “good cause” for granting the extension.

Section 37R(3) of the AFRCO, being the 3^rd condition above, mirrors s.217(5)(b) of the Securities and Futures Ordinance (Cap. 571) (SFO). The Tribunal observed that while the SFO provision is framed slightly differently, the spirit of both sections is clear: the existence of a “good cause” is pre-requisite for the AFRRT (and the Securities and Futures Appeals Tribunal (SFAT)) to exercise its discretion to extend time for a review application. The AFRRT was accordingly inclined to adopt a similar approach as the SFAT and rejected the argument that the principles for an extension of time under Order 3 rule 4 of the Rules of the High Court (Cap. 4A) should be followed.

In this case, the Auditors sought a time extension on the basis that more time was require for to seek advice from senior counsel. The Tribunal stressed that the unavailability of an applicant’s preferred Counsel is generally not in itself a good cause for time extension, but granted a short time extension in view of the overall circumstances.

 

[1] See Statement of Agreed Facts - Annex 1 to the Determination.

[2] See Annex 2 to the Determination.

[3] Koong Wing Yee v Insider Dealing Tribunal (2008) 11 HKCFAR 170.

[4] Law Society v Emeana [2013] EWHC 2130 (Admin); Chan Yui Hang v Registrar of the HKICPA [2022] HKCA 805; see also AFRC’s Sanctions Policy for Professional Persons §5(d): https://www.afrc.org.hk/en-hk/publications/guidelines/discipline/sanctions-policy-for-professional-persons.pdf

[5] Section 37Q of the AFRCO; for further details on the review application procedure to the Tribunal, see: https://www.afrc.org.hk/en-hk/functions/discipline/disciplinary-process/  

[6] Section 37R of the AFRCO.