1. HKSA HKSA QP Case Competition Team 28 Presented by: The Chinese University of Hong Kong Chris Lo Colin Lau Raymond Chan Nicole Ng P rospective S tudents S ociety Q ualification P rogramme C ase A nalysis C ompetition 2 002 HKSA QP Case Competition Team 28

2. AGENDA Background Ethical Issue Action & Consequence Recommendation Conclusion HKSA QP Case Competition Team 28

3. Background Ethical Issue Action & Consequence Action & Consequence Recommendation Conclusion HKSA QP Case Competition Team 28

4. Ethical Issue Personal Loyalty Integrity, Objectivity and Independence Statement 1.203 Integrity, Objectivity and Independence Statement 1.203 Auditors’ Responsibility to Fraud SAS 110 Auditors’ Responsibility to Fraud SAS 110 Going Concern SAS 130 Going Concern SAS 130 Background Action & Consequence Action & Consequence Recommendation Conclusion Ethical Issue ? ? ? ? ? HKSA QP Case Competition Team 28

5. Rejects Alfred’s request Recommendation Conclusion Ethical Issue Background Action & Consequence Action & Consequence Action & Consequence Accepts Alfred’s request

6. James  Get good evaluation & further promotion  Be found guilty Beta’s potential investors  Likely discover hidden information A&P  Keep good relationship with Beta  Likely be sued by investors Beta  Get listed on GEM  Face risk of bubbles burst Accepts Alfred’s request The Profession & the Society are hurt HKSA QP Case Competition Team 28

7. Rejects Alfred’s request Recommendation Conclusion Ethical Issue Background Action & Consequence Action & Consequence Action & Consequence Accepts Alfred’s request

8. Beta’s potential investors  The general confidences of investors are kept A&P  Lose client  Reduce risk of being sued by stockholders Beta  Approach other auditors (opinion shopping) James  Can’t keep friendship  Not being found criminal guilty Rejects Alfred’s request The Profession & the Society HKSA QP Case Competition Team 28

9. Recommendation Ethical Issue Action & Consequence Action & Consequence Conclusion Recommendation Emphasize on: –Conducting communication –Insisting on our professional conduct Three Phases: –Phase I – Communication –Phase II – Insistence on profession –Phase III – Withdrawal from the engagement HKSA QP Case Competition Team 28

10. Continue the audit procedures Risk of snowball effects Masking the truth is not equal to solving the problem Disguise the fact now >> problem accumulate Accumulated problem will explode sooner or later and lead to an uncontrollable financial disaster. Suitability of IPO Think about the current economic situation of HK Think about the cost of IPO Advise Alfred to think about other ways to collect fund Reputation of the firm If public discover that the statements are not presented in a true and fair way, they will lose their confidence on the company Reputation is important for long term Follow the request and Do not disclose the fact Reject the request of Alfred Communicate with clients explain with reasons Not Accept Accept

11. Insist on Profession Accept Not Accept Withdrawal from the engagement Loss one Customer now, but earn good reputation in long term Seek advice from seniors and professional bodies throughout the whole process, Continue the audit procedures

12. Background Ethical Issue Action & Consequence Action & Consequence Recommendation Conclusion Whistle blower Recovery of Investors’ Confidence HKSA QP Case Competition Team 28

13. Q&A HKSA QP Case Competition Team 28

14. Thank You HKSA QP Case Competition Team 28