Should I Hide my Real Client List?

It is no secret that practicing accountants are required to observe, maintain and apply the Code of Ethics for Professional Accountants (“COE”).  But how do we strike a balance between being ethically justified and maintaining effective practice protection?

We all know the fundamental principles of ethics by heart, and undoubtedly, in your everyday work, or even more so when your practice is under the regulators’ scrutiny, that you would come across decisions that ethics come into play.  But what would be the realistic consequences in not taking these principles into consideration?

Practitioners, who contact EQC Compliance Advisory, are usually undergoing various stages of the inspection  and disciplinary processes, either before the review, or in the midst of addressing and responding to stubborn findings, or even when responding to complaints.

Certain practitioners have already made up their minds on their approach to resolving their “problems” in practice, and simply would like to have to our third-party affirmation before they proceed, and some would do so without consulting anyone.  And often, these “solutions” would involve unethical short-cuts.  For example, a master plan to hide a significant portion of the client / engagement list from the inspectors followed by justification on how easily it can be achieved.

Fantasy is not (at least not yet) a crime in Hong Kong, nor is it unethical to just think about it. Just for the sake of discussion, let us assume that one does carry out this fantasy.  If you are the assigned inspectors, how would you test for under-reported revenues in an audit practice unit?  We made a list of some possible procedures:

1. Select samples of bank-in receipts from the practitioner’s bank statements and cross-check against the practice’s issued debit notes
2. Perform a sample check on the sequential order of debit note numbers
3. Select and check subsequent receipts for debit notes previously issued
4. Cross check total revenues of the engagement list to the practice’s audited financial statements
5. Perform analytical review and ratio analyses on revenues against employee headcount and cross check to employers’ returns and payment records
6. Perform reasonableness test on leased office space and fixed overhead as a percentage of reported revenues
7. Maintain professional skepticism, and perform additional un-announced spot checks (or so-called unpredictable audit procedures, as we would normally address presumed fraud risk on revenue recognition) at the practice’s office and interview on-site employees and practitioner(s), to corroborate answers and to understand their control environment and the practice-wide controls.

This list goes on, and apparently, this is not an exhaustive list of possible procedures.

We should always be reminded that not all inspection visits are chosen by the four-tiered pre-designated risk profile, nor necessarily by random sampling; but often cases are initiated from complaints received via the compliance department of the AFRC for suspected or alleged fraud or for any other non-compliance by members of the Institute.  Complaints are most often submitted by disgruntled ex-employees or disbanded partners. 

The Inspection Committee, the Council or the Disciplinary Panel would take breaches of integrity much more seriously than deficiencies identified in an audit & assurance practice, and such breaches once proven, with or without third-party witnesses or evidence, would definitely result in cancellation and non-issuance of the practicing certificate for at least a 12-month period along with a hefty penalty. 

We, as accountants should always try to uphold and apply the COE in our decisions, especially pertaining to integrity.  It is not worth risking your career with reckless actions that may cost you more than your reputation, money and time. 

In spite of the just-for-fun sarcasm, we welcome you to set up an appointment with us and discuss your options and “do it right”, as EQC Compliance Advisory has a wealth of experience, resources and proven solutions that may cater to you and your practice’s needs, effectively elevating your audit standards, implementing the appropriate safeguards and help preparing for your next inspection.  All without (significantly) compromising your ethical bottom-line, and more importantly, not having to expose your practice to unnecessary risks that can be easily avoided with our help.