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Loans and auditing

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Adam worked in the audit department of a big deposit-taking company. One day, he was approached by Philip, the manager of the loans department and also his former schoolmate. Philip informed Adam that he had recommended a loan of $1,000,000 to a client who was apparently unable to produce the securities as required.  Philip tried to persuade Adam to join him in making the recommendation since the applicant, who needed money desperately to start a trading company, happened to be Philip’s uncle.  Philip also promised to give a portion of shares of the new company to Adam in return.   This could bring in considerable income once the business was established.  All Adam had to do was to turn a blind eye, and he needed not lift a finger.


Should Adam accept Philip’s offer and collude with him?  Why?

Case Analysis

Adam might violate Section 9 of the Prevention of Bribery Ordinance (POBO) if he, as an employee of his company, without the approval from his employer, accepted advantages offered by Philip (i.e. the shares of his uncle’s new company) for turning a blind eye to the unqualified loan application.  Philip might also violate the POBO for offering bribes.


As an accounting professional, Adam should observe and comply with his professional code of conduct.  The Hong Kong Institute of Chartered Public Accountants (HKICPA) requires a professional accountant to comply with relevant laws and regulations, and avoid any conduct that the professional accountant knows or should know might discredit the profession.  Also, a professional accountant needs to comply with the fundamental principles of integrity and objectivity as stipulated in the HKICPA’s Code of Ethics for Professional Accountants which requires an accountant to be straightforward and honest in all professional and business relationships and avoid any conflict of interest situations.   


Meanwhile, Adam also needs to observe his company’s code of conduct governing loan applications.  He may consider report the attempted bribe to the management and to the ICAC.

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