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HKICPA piles on to PCAOB action

The Hong Kong Institute of CPAs (HKICPAs) functions as the regulator of the CPA profession in Hong Kong. Nearly every country in the world has abandoned self-regulation of the profession because it is apparent the profession never really regulates itself.  There have been proposals to enhance audit regulation in Hong Kong by transferring regulation from the HKICPA to the Financial Reporting Council. But after a long round of consultations in 2014 nothing has happened, and Hong Kong remains an unfortunate outlier operating well below international standard. It has been promised that legislation will be introduced to establish independent audit regulation by the end of this month.  

There is an interesting disciplinary case by the HKICPAs against a Hong Kong CPA firm and three of its partners because the firm had been banned by the PCAOB for faulty audits. The firm was Albert Wong & Company, that later morphed into AWC (CPA) Limited, and then DCAW (CPA) Limited and in its current incarnation is Centurion ZD (CPA) Limited (Centurion). In its Form 3 filed with the PCAOB to report the Hong Kong sanctions, Centurion admits it is the successor to banned firm AWC (CPA) Limited. I fail to understand why the PCAOB ban did not apply to the successor firm. Despite the fact that AWC (CPA) Limited was banned from PCAOB practice, Centurion remains registered with the PCAOB and has issued 34 audit reports on US listed companies this year. I think they may have pulled one over on the PCAOB.

PCAOB bans small HK CPA firm

The Public Company Accounting Oversight Board (PCAOB) has published disciplinary actionsagainst a small Hong Kong CPA firm, Anthony Kam & Associates and Anthony Kam himself (Kam). Kam and his firm have been fined, censured, and banned from doing audits of US listed companies for at least five years because of shoddy work on Sino Agro Food, Inc (SIAF), a Chinese reverse merger. 

Kam was found to have signed off on the 2012 audit of SAIF without actually conducting an audit. Kam had taken over the audit from another firm and reissued the financial statements without doing any work other than obtaining a representation letter from the client and getting a copy of the prior auditors working papers. Serious deficiencies were found in the 2013 and 2014 audits. 

The PCAOB lamented that it should have inspected KAM at least twice since 2009, but was unable to do so because China blocks access. Somehow the PCAOB was able to pursue this action; possibly it was done under the 2013 Enforcement Cooperation Agreement. If Trump wants to get tough on China, he might start by demanding the Chinese comply with US laws or else delist their companies from US markets. 

Singles day and GMV

Alibaba had another spectacular singles day, reporting US$25.3 billion of gross merchandise volume settled through Alipay. Business Insider reports that this nearly doubled the $12.8 billion that US retailers sold between Thanksgiving and Cyber Monday last year.  

"More than US$25 billion of GMV in one day is not just a sales figure," said Daniel Zhang, Chief Executive Officer of Alibaba Group. "It represents the aspiration for quality consumption of the Chinese consumer, and it reflects how merchants and consumers alike have now fully embraced the integration of online and offline retail."

Actually, Zhang is wrong. GMV is not at all a sales figure (although it may well represent the aspirations of the Chinese consumer).  Alibaba does not report GMV as revenue (or sales), Instead Alibaba reports the transaction fees it charges to sellers.  In its fiscal year 2017, Alibaba reported 114 billion RMB of revenue on GMV of 3.8 trillion RMB.

Analysts love GMV, which they believe gives a more meaningful view as to the volume of business going through the platform. A major problem is that GMV is not a defined accounting term, and the numbers are unaudited.   

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