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  Procedures governing Complaints, Investigation and Enquiry > Investigation
 
   
1
The FRC may initiate an investigation into possible auditing and reporting irregularities committed by auditors and reporting accountants of listed entities , in its own right or upon receipt of a complaint.
   
2
In order to decide whether or not an investigation should be initiated, the available information and evidence will be reviewed. The auditor, reporting accountant, and/or listed entity concerned may be asked to provide additional information and an explanation on the matters.
   
Discretion to initiate an investigation
   
3
Where the FRC considers that it appears that there are circumstances suggesting and/or there is reasonable cause to believe that there is or may be a relevant irregularity, and certifies in writing to this effect, the FRC may initiate an investigation. The FRC needs to determine whether the investigation falls under the categories of “circumstances suggesting” and/or “reasonable cause to believe” in order to establish the powers of an investigator.
   
4

The FRC will normally direct the Audit Investigation Board (the "AIB") to act as the investigator and conduct an investigation but in exceptional circumstances, may decide to conduct the investigation itself.

For further information, please refer to section 23 of the Financial Reporting Council Ordinance (the “FRC Ordinance”).

   
Exercising general powers of investigation
   
5
If an investigation is initiated on the grounds of "circumstances suggesting", the AIB1 may, in writing, require certain persons such as auditors or reporting accountants, listed entities and their current or past officers or employees, authorized institutions or transaction counterparts:-
 
(a) to produce records or documents;
(b)
to explain or make a statement regarding records or documents produced and to verify their explanation or statement by a statutory declaration;
(c)
to state the whereabouts of any missing records or documents and to verify their statement by a statutory declaration;
(d) to make copies or record the details of records or documents produced; and
(e)
if an explanation or statement is not given or made for the reason that the information concerned is not within their knowledge or possession, to verify that reason and fact by a statutory declaration.
 

The AIB1 is required to certify that certain conditions as set out in the FRC Ordinance are satisfied; for example, the AIB1 has reasonable cause to believe a person is in possession of records or documents that relate to the audit of the financial statements or preparation of the accountants’ report; and the relevant records or documents required to be produced is relevant to the relevant irregularity.

For further information, please refer to sections 25, 26 and 27 of the FRC Ordinance.
   
6
If an investigation is initiated on the grounds of “reasonable cause to believe”, the AIB1 may, in writing, require the auditors, reporting accountants or any other persons whom the AIB1 has reasonable cause to believe to be in possession of records, documents or information relevant to the relevant irregularity:-
   
 
(a) to produce records or documents;
(b) to attend interviews and answer questions;
(c) to respond to written questions;
(d) to give the AIB1 all other assistance in connection with the investigation;
(e) to explain or give further particulars regarding records or documents produced;
(f) to verify their answer, response, explanation or particulars given under (b), (c) and (e) by a statutory declaration; and
(g)
if an answer, response, explanation or particulars is not given for the reason that the information concerned is not within their knowledge or possession, to verify that reason and fact by a statutory declaration.
  For further information, please refer to section 28 of the FRC Ordinance.
   
7

Where any person, without reasonable excuse, fails to comply with a requirement imposed on him or provides false or misleading information, he may commit an offence. The AIB1 may also apply to the Court of First Instance for an inquiry into this failure. Any person convicted may be subject to a fine and/or to imprisonment.

For further information, please refer to sections 31 and 32 of the FRC Ordinance.
   
8

If there are reasonable grounds to suspect that there are on premises any records or documents required to be produced in accordance with the FRC Ordinance as set out above, the AIB1 may apply for a search warrant to enter the premises and seize the records or documents.

For further information, please refer to section 34 of the FRC Ordinance.
   
Concluding an investigation
   
9
As soon as practicable after the completion of an investigation, the AIB1 will prepare a written report on its findings.
   
10
The FRC may adopt an investigation report and may take or order further action as appropriate before the report is adopted. If before the adoption of a report, the FRC is of the opinion that any person named in the report will be adversely affected by its publication or disclosure, that named person will be given a reasonable opportunity of being heard.
   
11

The FRC may close a case, suspend an investigation or carry out other follow-up action including referral to appropriate regulatory bodies and/or law enforcement agencies as it considers appropriate. The FRC will notify the relevant auditor or reporting accountant once it comes to a decision unless it is satisfied that the notification may prejudice the investigation, or, any other action which the FRC, a regulatory body and/or law enforcement agency intends to take in relation to the investigation.

For further information, please refer to section 36 of the FRC Ordinance.
   
12
The function of the FRC, in relation to auditing and reporting irregularities, is confined to investigation and reporting the findings of its investigations. The FRC is not empowered to carry out disciplinary action or prosecution.
   
13
The FRC may refer its investigation reports to the Hong Kong Institute of Certified Public Accountants for follow-up action. If the irregularities are related to the Listing Rules, the reports may be referred to The Stock Exchange of Hong Kong Limited or the Securities and Futures Commission for follow-up action. The reports may also be referred to other regulatory bodies and law enforcement agencies for necessary follow-up action as appropriate.
   
14
The FRC may decide to publish a report or any part of it. In deciding whether or not to publish an investigation report, or any part of it, the FRC shall consider:-
 
(a)
whether or not the publication may adversely affect any criminal proceedings or any proceedings before the Market Misconduct Tribunal or under the Professional Accountants Ordinance;
(b) whether or not the publication may adversely affect any person named in the investigation report; and
(c)
whether or not the investigation report, or any part of the report, shall be published in the interest of the investing public or in the public interest.
   
Footnote:
 
1
In a case where the FRC decides to conduct the investigation itself, the references to “the AIB” should be replaced with “the FRC”.
 

Page last updated: 12 July 2007