1. This appeal concerns the meaning and proper application of accounting standards relating to the treatment of available-for-sale financial assets (“AFSFAs”), and the duties of auditors in respect thereof for the purposes of professional disciplinary proceedings. 2. This Court dismissed the Appellants’ appeal, finding that: (a) The Appellants’ understanding of the relevant accounting standard was wrong; and (b) Section 34(1)(a)(vi) of the Professional Accountants Ordinance (Cap. 50) (“PAO”) does not incorporate a standard of reasonableness capable of excusing auditors’ default in observing the standard or otherwise excusing a failure to understand the applicable standard. 3. The 2nd Appellant audited the financial statements (the “Financial Statements”) of Heng Tai Consumables Group Limited (“Heng Tai”). The 1st Appellant acted as the engagement partner of the audit. 4. The relevant AFSFA was a parcel of shares (the “Shares”) held by Heng Tai in another listed company. 5. The standards for accounting treatment of AFSFAs are contained in Hong Kong Accounting Standard 39 (“HKAS 39”). The relevant version contains amendments as at May 2009. 6. HKAS 39 requires AFSFAs to be measured at fair value, and gains and losses of such assets to be recognised directly in equity through the statement of changes in equity. However, if the fair value should decline to an extent that provides objective evidence that impairment loss has been incurred, HKAS 39 requires the cumulative loss to be removed from equity, and recognised in profit or loss. 7. The auditors agreed with Heng Tai’s management that the Shares should not be treated as impaired, notwithstanding that their cumulative loss represented more than 60% of the investment cost. The auditors issued an unqualified audit report. 8. Investigations and proceedings were brought against the Appellants. The complaint, in substance, was that the Appellants had “failed or neglected to observe, maintain or otherwise apply a professional standard, namely [Hong Kong Standards of Auditing 700 (“HKSA 700”)], in that they failed properly to evaluate Heng Tai’s compliance with HKAS 39 in respect of the Shares, before issuing an unqualified audit opinion.” The Disciplinary Committee (“Committee”) of the Hong Kong Institute of Certified Public Accountants (the “Institute”) found the complaint substantiated. The Court of Appeal (“CA”) dismissed the Appellants’ appeal. 9. This Court concluded that on the true construction of HKAS 39, an impairment adjustment had to be made in respect of Heng Tai’s AFSFA which consisted of an equity instrument since there had been a significant or prolonged decline in its fair value. 10. A “significant or prolonged decline in the fair value of equity instrument below its cost” is a head of objective evidence of impairment, which is in addition to, and independent of, the categories of objective evidence set out in HKAS 39.59. It is also independent of the head of objective evidence described in the first sentence of HKAS 39.61. 11. On a proper construction, PAO s.34(1)(a)(vi) does not provide for any form of reasonable excuse as a justification for failing or neglecting to apply a relevant standard. 12. It is not aimed at punishment, but aimed simply at enforcing the applicable published standards in the interest of uniform and predictable professional practice without implying any fault, moral blame or misconduct. 13. This Court held that the auditors failed properly to evaluate Heng Tai’s failure to trigger HKAS 39.67 before issuing their unmodified audit opinion and thus failed or neglected to observe, maintain or otherwise apply the professional standards set out in HKSA 700. Accordingly, the appeal was dismissed.