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Financial regulation
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Hong Kong’s regulators turn their scrutiny to Convoy’s financial statements and auditor in their crackdown of Enigma Network

  • Zhonghui Anda CPA, which qualified each of Convoy’s three financial statements with multiple exceptions, failed to convey the risks in the results, the Financial Reporting Council said
  • The audit firm would also become the subject of an investigation, FRC said

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The office of Convoy Global Holdings in Wan Chai ahead of an extraordinary general meeting of shareholders on January 7, 2021. Photo: K. Y. Cheng
Enoch Yiu

The Financial Reporting Council (FRC), Hong Kong’s top accounting regulator, said it has begun an investigation into the financial statements of Convoy Global Holdings, and singled out its auditor for failing to raise the red flag on the financial advisory firm’s state of accounts.

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Convoy, which released its results for 2017 through 2019 on February 18 to fulfil its obligation to resume trading on the Hong Kong stock exchange, should have its accounts put under scrutiny “without delay” because of “the potential implications of the form of the audit opinions [on] Convoy’s listing status,” according to a statement by the FRC.

Zhonghui Anda CPA, which qualified each of Convoy’s three financial statements with multiple exceptions, failed to convey the risks in the results of the largest adviser to Hong Kong’s Mandatory Provident Fund, the regulator said, adding that the auditor would also become the subject of an investigation. Calls to Zhonghui’s office in Causeway Bay went unanswered.

“An auditor is not permitted to qualify the audit opinion if the unknown effects of such exceptions could be both material and pervasive,” the FRC said, adding that the auditor should have withdrawn from the audit, or added disclaimers in its assessment. “This is because a qualification would be inadequate to communicate the gravity of the situation in those circumstances.”

The FRC’s unprecedented move, its first announcement of such an inquiry since its establishment in 2006, underscores the resolve by Hong Kong’s regulators in cleaning up corporate malfeasance and financial fraud in Asia’s second-largest capital market. Billions of dollars of capital unleashed by global central banks to help the world economy weather the coronavirus pandemic have flooded Hong Kong’s equity, real estate and money markets in recent months, keeping regulators on edge.
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