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Professional Integrity of Accounting Professionals

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Jimmy and Billy studied Accounting and Finance in the same university and became very good friends.  After graduation, Billy started his own trading business.  His company, B&B Co. Ltd., had been expanding very fast and achieving a huge annual turnover.  Jimmy pursued his career in accountancy and worked hard to become a partner in a CPA firm.  Naturally, B&B Co. Ltd. became one of the major clients of Jimmy's firm, contributing to 20% of its professional income.


This year, B&B Co. Ltd. was facing a very difficult position.  Apart from losing a few major customers, a significant loss was discovered after Jimmy's firm completed the year-end audit for B&B Co. Ltd.


Jimmy was invited to lunch by Billy.  Over the lunch Billy told Jimmy that he was negotiating a big order.  If he could successfully apply for a line of credit with a bank to handle the order, B&B Co. Ltd.'s position would turn around. By then, even more services would be needed from Jimmy's firm. 


However, he was worried that if the bank was aware of B&B Co. Ltd.’s current financial position, it would not grant credit facilities.  Billy then asked Jimmy to use whatever device to improve the financial position of his company and promised to duly reward Jimmy with a luxurious car after overcoming this hurdle.  If Jimmy refused his request, he had no choice but to appoint another CPA firm next year.


Case Analysis

The offering of “reward” by Billy as an inducement for Jimmy to misrepresent the financial position of B&B Co. Ltd. was a breach of Section 9 of the Prevention of Bribery Ordinance (POBO).  Jimmy should refuse Billy’s offer and make it clear to Billy that while B&B Co. Ltd. was an important and valued client of his firm, no financial inducement or veiled threat would cause him to compromise his independence and professional integrity in connection with either the company's forthcoming audited financial statements or any other professional engagements carried out for B&B Co. Ltd.


Jimmy might consult a fellow partner at this stage in considering his alternative responses to this sensitive situation and in clarifying his own professional responsibilities in the circumstances, although remaining mindful at all times of the need to preserve client confidentiality.  In the event that Jimmy had no appropriate internal channel for such consultation, he might consider consulting the Hong Kong Institute of Certified Public Accountants.


As Billy’s close friend, Jimmy should explain to Billy that the use of “whatever device he could to improve the financial position of B&B Co. Ltd.” was inappropriate, and that he and his firm would endeavor to help the company overcome the current challenges by legitimate means.


If Billy was unwilling to change his position and insisted on carrying through his threats, Jimmy should point out that, having substantially completed the audit that they were engaged to perform, his firm would propose to issue a qualified report if B&B Co. Ltd.’s financial statements did not give a true and fair view. 


Having fulfilled their statutory responsibility by reporting to the shareholders, Jimmy should explain that his firm would tender their resignation.  Details of these circumstances would also be given to any proposed successor firm of auditors in etiquette correspondence.  In the event that B&B Co. Ltd. attempted to remove Jimmy's firm from office, Jimmy should explain that he would consider making similar representations to the shareholders as entitled under the Companies Ordinance.


Jimmy was suggested to report the attempted bribe to the ICAC to safeguard his own interests.  

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