Tay Kim Chuan Patrick v Public Accountants Board

• Jurisdiction: Singapore
• Judge: Tan Lee Meng J
• Judgment Date: 17 January 2002
• Neutral Citation: [2002] SGHC 9
• Docket Number: Originating Motion No 600017 of
• Date: 17 January 2002
• Published date: 19 September 2003
• Year: 2002
• Plaintiff Counsel: G Raman (instructed) and Eben Ong (Loh Eben Ong & Partners)
• Citation: [2002] SGHC 9
• Defendant Counsel: Lee Han Yang and Gabrielle Tan (Yeo-Leong & Peh)
• Court: High Court (Singapore)
• Subject Matter: Breaches of Statement of Auditing Guidelines,Professions,Whether suspension for 18 months too harsh,Professional misconduct,Whether Public Accountants Board wrong in finding appellant guilty of charges,Effect of Statement of Auditing Guidelines,Standard of care required of auditors,Accountants,Duty of auditors

Judgment

GROUNDS OF DECISION

1. The appellant, Mr Patrick Tay Kim Chuan who was suspended by the Public Accountants Board ("PAB") from practising as a public accountant for 18 months on the ground of professional misconduct, appealed against the PAB’s decision. The PAB had found that he breached Rule 11 of the Public Accountants Board Rules 1989, which relates to the professional and technical standards expected of him as a public accountant, when he conducted the audit of Amcol Holdings Ltd for the year ended 31 December 1995. Mr Tay denied the allegation of professional misconduct and asserted that the penalty meted out to him by the Board was too harsh

A. BACKGROUND

2. In June 1996, some directors of Amcol Holdings Ltd ("Amcol") informed the Stock Exchange of Singapore ("SES") about some irregularities in the management of the Amcol Group, whose principal activities included consumer electronics, property and resort development and equity investments. The SES informed Amcol, which had 29 subsidiaries and 12 associates and assets of nearly $1.5 billion, that there should be a thorough review of the Group’s operations and financial position to protect the interests of shareholders. The review was to be supervised by three new independent directors appointed for this purpose.

3. The new directors appointed Price Waterhouse as Special Accountants. On 24 July 1996, Price Waterouse submitted their Special Accountants Report, which contained observations and comments on Amcol and the Group’s operations and financial position. Following the report, the PAB appointed an Inquiry Committee in August 1997 to inquire into the conduct of the public accountants from the firm of BDO Binder ("BDO"), which was responsible for the audit of Amcol for the year ended 31 December 1995. The Inquiry Committee comprised four senior accountants and a lay person. It was chaired by Mr Steven Lim Kok Hoong, the managing partner of Arthur Andersen, and the other members of the Inquiry Committee were Mrs Sally Chan, the deputy director of the Accountant General’s Office, Mrs Maria Lee-Low Lai Meng, a senior partner of KPMG Peat Marwick, Mr Willie Tay Kwang Lip, the managing partner of TS Tay & Associates, and Mr David Gerald Jeyasegaram, a lawyer.

4. In September 1997, pursuant to section 20(4) of the Accountants Act, the Inquiry Committee appointed Dr Foo See Liang and Mr Shanker Iyer as Reviewers to jointly make whatever preliminary inquiries they thought necessary in respect of the subject matter of the inquiry. The Reviewers took the view that the results of their initial inquiries showed prima facie breaches by the auditors of professional pronouncements, including, but not limited to, the Statement of Auditing Guidelines ("SAG"), Statement of Accounting Standards ("SAS") and the Companies Act.

5. BDO had been the principal auditors of Amcol for several years. Mr Patrick Tay, a certified public accountant with 29 years of experience, admitted that he was the partner responsible for the audit in question. The relevant audit report was dated 30 April 1996 and was presented to Amcol’s shareholders in June 1996. In the following month, Amcol was placed under judicial management and Ernst & Young replaced BDO as the auditors for Amcol.

6. Mr Tay submitted two written responses to the Inquiry Committee. The first was dated 30 November 1999 (the "first response") and the second was dated 7 October 2000 (the "second response"). At the hearing of the inquiry, Mr Tay faced a total of 19 charges concerning inadequate planning and a failure to conduct a proper review. It was alleged that he had breached, inter alia, SAGs and the Group Audit Planning Brief ("GAPB") guidelines.

7. The Inquiry Committee, before whom Mr Lee Han Yang, the PAB’s counsel, and Mr G Raman, Mr Tay’s counsel, appeared, found Mr Tay guilty of 16 of the 19 charges. Its overall conclusion was as follows:

By reason of the various breaches of the professional and technical pronouncements, the Inquiry Committee finds that the said Mr Patrick Tay has breached Rule 11 of the Public Accountants Board Rules 1989, and is thereby guilty of professional misconduct under section 21(1)(a)(ii) of the Accountants Act 1987, Cap 2A.

8. On 1 June 2001, the PAB suspended Mr Tay from practising as a public accountant for 18 months with effect from 1 July 2001. Mr Tay then lodged his appeal against the PAB’s decision.

B. THE APPEAL

9. At the hearing of the appeal against the PAB’s decision, Mr Tay claimed that the Inquiry Panel erred in finding him guilty of most of the charges faced by him. His counsel, Mr Raman, who contended that BDO had exercised its judgment in determining the necessary auditing procedures required in this case, pointed out that in Re Kingston Cotton Mill Co (No 2) [1896] 2 Ch 279, 288-289, Lopes LJ said that the role of an auditor was that of a watchdog and not that of a bloodhound. He asserted that the Inquiry Committee had expected Mr Tay to be a bloodhound. On the other hand, PAB’s counsel, Mr Lee Han Yang, contended that Mr Tay’s conduct fell far short of what can be expected of an auditor. In his view, Mr Tay paid scant regard to the promulgations of the PAB and his actions as Amcol’s auditor bordered on disrespect and contempt for the rules of the accountancy profession.

The role of an auditor

10. Before considering the 16 relevant charges against Mr Tay, a consideration of the role of an auditor will be helpful. In Re London & General Bank (No 2) [1895] 2 Ch 673, 682, Lindley LJ said:

[An auditor’s] business is to ascertain and state the true financial position of the company at the time of the audit, and his duty is confined to that. But then comes the question : How is he to ascertain that position? The answer is, by examining the books of the company. But he does not discharge his duty by doing this without inquiry and without taking any trouble to see that the books themselves show the company’s true position. He must take reasonable care to ascertain that they do so. Unless he does this, his audit would be worse than an idle farce. Assuming the books to be so kept as to show the true position of a company, the auditor has to frame a balance sheet showing that position according to the books and to certify that the balance sheet presented is correct in that sense. But, his first duty is to examine the books, not merely for the purpose of ascertaining what they do show, but also for the purpose of satisfying himself that they show the true financial position of the company.

11. Lindley LJ’s view was endorsed in Wong Kok Chin v Singapore Society of Accountants [1989] SLR 1129, 1148 by Yong Pung How J, as he then was, who added as follows:

While reasonable care and skill as first laid down in these 19^th century cases still remains the standard required of an auditor, some recent authorities have generally recognised the more exacting nature of this standard in the light of modern day conditions. The importance of this has been emphasized by considering defaults in the light of the surrounding circumstances, having regard also to professional codes of standards and guidelines and to evidence of general professional practice. In particular, a court which is determining a case must guard against hindsight and only take into account knowledge available to the auditor at the time of default….

In determining whether there has been a breach by an auditor of the duty of reasonable skill and care, the court must therefore have regard to the overall background and circumstances in which the alleged breach occurred.

Charge No 1

12. The first charge against Mr Tay concerned the fact that the Reviewers found no evidence in the Group Audit Planning Brief ("GAPB") or in the other audit working papers that he had evaluated and documented the potential impact of the significant increase in the number of companies making losses and the significant decline in the profits of the Group after the draft accounts of the companies included in the consolidation for the year ended 31 December 1995 were made available to BDO. In fact, the Reviewers asserted that the GAPB was mainly prepared on the basis of accounts up to 30 June 1995. Mr Tay was alleged to have breached the following:

(a) SAG 5(11), which stipulates a list of matters that the auditor should consider when developing his overall plan for the expected scope and conduct of the audit;

(b) SAG 4(14), which states that plans should be further developed and revised as necessary during the course of the audit; and

(c) SAG 5(3), which states that planning should be continuous throughout the engagement.

13. The Inquiry Committee asserted that Mr Tay did not answer the charge against him. It said that his position was that as he had already performed the audit, audit planning was irrelevant and noted that he had explained his approach to auditing as follows:

If you want to do a good job, there are certain steps, procedures, but whether you should do procedure No 1 first or procedure No 2, for example, coming back to your cooking experience, what is there to pour in the lime juice in making rojak last but the rojak man prefers to put the lime juice in the blachan and all that and he mixes that first. At the end of the day, you still get a very good rojak dish.

14. PAB’s counsel, Mr Lee, pointed out that Mr Tay had confused an "audit plan" with an "audit programme" and that his explanation in relation to the first charge concerned the execution of standard audit programmes and not audit planning.

15. At the hearing of the appeal, Mr Raman conceded that his client did not include the Group’s deteriorating performance in the audit plan in question but submitted that this state of affairs could be ascertained from other documents, including the subsidiaries’ accounts. This is not an answer to the first charge. Furthermore, it should not be overlooked that at the hearing of the inquiry,...