Hong Kong: Trial Of Compensation Cases For Tort Involving Audit Businesses Of Accounting Firms

Last Updated: 11 October 2007
Article by Alex Chan

Several Provisions of the Supreme People’s Court on the Trial of Compensation Cases for Tort Involved in the Audit Business of Accounting Firms.

For a proper trial of compensation cases for tort involved in the audit business of accounting firms, and protection of the social and public interests and the lawful rights and interests of the parties concerned, the Supreme People’s Court promulgated the Several Provisions of the Supreme People’s Court on the Trial of Compensation Cases for Tort Involved in the Audit Business of Accounting Firms (the "Provisions") on 11th June 2007. The Provisions shall be implemented from 15th June 2007. The contents of the Provisions are summarized as follows:

  • Where an interested party institutes proceedings in the People’s Court to claim compensation for tort on the ground of loss suffered as a result of an untrue report issued by an accounting firm engaging in the audit business as stipulated in Article 14 of the Law of the People’s Republic of China on Certified Public Accountants (the "Law on Certified Public Accountants"), the People’s Court shall entertain the case in accordance with law.
  • Where any natural person, legal person or other organization has suffered loss resulting from reasonable reliance upon or the use of an untrue report issued by an accounting firm in carrying out a deal with the audited unit or engaging in trading activities in relation to the stocks or bonds of the audited units, the same shall be regarded as an interested party as stipulated in the Law on Certified Public Accountants.
  • Where an accounting firm causes losses to the interested party as a result of its issuance of an untrue report externally in its audit business, the firm shall be liable for compensation for tort unless it is able to prove that it has not committed any wrongful act.
  • Where a certified public accountant issues an untrue report which causes losses to the interested party and one of the following circumstances appears in audit business of the accounting firm, the audited unit is deemed to be joint and severally liable for the compensation:
    • malicious collusion with the audited unit;
    • failure to state that the accounting treatment of the audited unit on an important matter contravenes the relevant provisions of the State despite having knowledge of the same;
    • concealment or issuance of an untrue report despite having knowledge that the accounting treatment of the audited unit will directly prejudice the interests of the interested party;
    • failure to state that the accounting treatment of the audited unit will lead to a material misunderstanding by the interested party despite having knowledge of the same;
    • failure to state that the important items of the financial statements of the audited unit contain untruthful contents despite having knowledge of the same;
    • failure to refuse the audited unit’s requests to make an untrue report.

Measures of China Securities Regulatory Commission for Implementing the Restrictions on Sale and Purchase of Securities

For the purpose of maintaining the normal order of the securities market, protecting the lawful rights and interests of investors and effectively combating the illegal acts in relation to securities, China Securities Regulatory Commission ("CSRC") promulgated the Measures of China Securities Regulatory Commission for Implementing the Restrictions on the Sale and Purchase of Securities (the "Measures") on 18th May 2007 in accordance with the Article 180(7) of the Securities Law of the People’s Republic of China. The Measures shall be implemented from the date of promulgation. The contents are summarized as follows:

  • Restrictions on the sale and purchase of securities refers to the restrictive measures imposed by CSRC on the sale and purchase of securities activities of the restricted accounts of the parties under investigation in the course of CSRC’s investigation of major illegal acts such as manipulation of the securities market and insider dealing.
  • Restrictive measures on the sale and purchase of securities include:
    • no purchase of designated trading products but sale of the same is allowed;
    • no sale of designated trading products but purchase of the same is allowed;
    • no sale and purchase of designated trading products is allowed;
    • no change of trust or cancellation of designated transactions;
    • other restrictive measures that the investigation department deems to be necessarily adopted.
  • For implementing restrictive measures on the sale and purchase of securities, an investigation department shall send the Notification of Restrictions /Lifting of the Restrictions on the Sale and Purchase of Securities to the securities exchanges, securities depository and clearing corporations, corporations dealing in securities etc, which assist in implementing the restrictions on the sale and purchase of securities respectively.
  • The relevant departments may announce the restrictions on the sale and purchase of securities as required. Where an institution which assists in implementing restrictive measures on the sale and purchase of securities fails to implement the restrictive measure in a timely and effective manner, it shall be held liable for the same in accordance with the relevant laws and regulations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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