International Finance and Accounting Handbook

15 • 30

Responsibility for

Country

Ethical Standards

Enforcement

Legal Liability

Detection of Fraud

Asia and Pacific (Continued)Japan

The CPA law and the JICPA

Under CPA Law, the Minister

Under the Securities and

The auditor must use due

code prohibit the impairment

of Finance is empowered to

Exchange Act, if investors

care to detect causes of ma-

of trust and require inde-

investigate violations and to

lose because of material

terial difference in financial

pendence, secrecy, and

assess penalties, including

errors in audited financial

statements. The auditor must

restrictions of advertising.

warning, suspension, or with-

statements, the auditor or

report actions that contradict

Punishment may be adminis-

drawal from registration. The

firm must compensate for an

the directors’ duties to the

tered for false and unreason-

CPA has the right to vindicate

error unless they can prove

statutory auditors of the

able attestation.

himself or herself. The JICPA

lack of intention and the use

client.

Punishment Committee also

of due care. Under the

enforces ethical standards.

Commercial Law Code, the

The President of the JICPA

auditor must compensate

determines penalties accord-

client for breach of contract

ing to the views of the com-

and for materiality false items

mittee and the board.

in an audit report if the audi-tor cannot prove due care.

Hong Kong

The Hong Kong Society of

The Hong Kong Society acts

Criminal liability for auditors

The auditor is not expected

Accountants has issued state-

as the disciplinary body.

who willfully make untrue

to search for fraud but must

ments of professional ethics

statements in the prospectus

be aware of the possibility of

originally based on those

or who induce another per-

it and investigate fully if there

issued by the Institute of

son by fraudulent or reckless

are grounds for suspicion.

Chartered Accountants in the

misrepresentation to invest

United Kingdom, but in some

money. The auditor is liable

cases updated based on

for damages to the client and

AICPA’s professional conduct.

in some cases to third partiesfor negligence resulting in fi-nancial loss. Negligence mayalso be treated as a criminaloffense.