Hong Kong's audit regulator has reprimanded PwC Hong Kong and two of its partners and imposed a total fine of HK$1.6 million for multiple deficiencies in the revenue recognition audits of Dynasty Fine Wine Group (0828) for the 2010 and 2011 financial years.
According to an AFRC statement, the penalties include a HK$800,000 fine for PwC, HK$600,000 for partner Cheng Kwong-on, and HK$200,000 for partner Raymond Kong Ling-yin, a statement by the Accounting and Financial Reporting Council showed.
The regulator said the auditor failed to obtain sufficient appropriate audit evidence for the revenue recorded by the group, leading to the erroneous issuance of an unmodified audit opinion, the highest level of assurance in auditing that indicates that financial statements are reliable and trustworthy.
The investigation revealed "numerous and pervasive" deficiencies related to revenue confirmation. Specifically, PwC did not apply professional skepticism or obtain enough evidence to verify that wine products had been delivered to and accepted by customers, a key condition for recognizing revenue. The auditor inappropriately relied on internal documents like sales and dispatch orders, which did not prove the goods were received, AFRC said.
An AFRC official stated that such failures often stem from poor audit planning, insufficient risk assessment, and flawed audit procedures. This case highlights the necessity for auditors to maintain professional skepticism, especially in high-risk areas like revenue recognition.
A PwC spokesperson responded that they noted the announcement did not find any intentional, dishonest, or deliberate misconduct. However, PwC acknowledged that the audits from over a decade ago fell short of professional standards. The firm stated its commitment to high-quality audits and cited significant investments in quality improvement programs, which it says are reflected in positive recent results.
