Occasionally, parties to a contract may find themselves in a difficult situation where they don’t agree on some accounting figures, but don’t want to ruin their relationship either through litigation or arbitration. Neither do they want to waste time on mediating a ‘trivial’ issue.
It may be wise on such occasions, to make a request (“Request“)to the Hong Kong Institute of Certified Public Accountants (“Institute“) to nominate a third party certified public accountant (“CPA“) to do the accounting work and give a number that both parties will agree upon.
Requests are sent to the President of the Institute (“President“) to nominate a practice of certified public accountants CPAs registered with the Institute to perform statutory audits, professional service of valuing company shares, taking custody of property in dispute as well as other services of similar nature.
Such Requests will be considered by the Institute on a case by case basis.
Upon receipt of such Request, the President will ask all parties to the application to agree in writing to his/her terms, which include, inter alia, the scope of liability in connection with the nomination of the CPA practices, before s/he proceeds to make the nominations. As such, the relevant terms are set out below for reference:
- The parties will reimburse the President and the Institute for any administration charge levied and / or legal fees and expenses that may be incurred in dealing with the request.
- The President, the Institute and its employees and agents will be liable in law for the consequences of doing or omitting to do an act in the exercise or performance, or the purported exercise or performance, of the nomination function only if it is proved that the act was done or omitted to be done dishonestly.
If the parties to the application agree to the above terms, each party should confirm their agreement in writing.
There are two proposed systems for making the nominations by the President, and the parties are free to adopt either of the system as detailed below:
(1) List system
This will involve each party sending to the President a list of at least five but no more than 10 CPA practices that they consider suitable for nomination. The President will select in his/her discretion any common name(s) on the two lists. If there is no common name, then s/he will have a complete discretion as to which practice(s) to nominate. Under such circumstance, the President will usually nominate three CPA practices for consideration of appointment by the parties.
(2) Random selection
The President will make a random selection of three CPA practices from the Institute’s database according to any agreed criteria between the parties. In this connection, the parties should agree on the criteria and provide the Institute in writing a list of such agreed criteria for the President to perform the random selection. In accordance with the Institute’s normal practice, the criteria should specify the following features of the CPA practices to be nominated for the purpose:
- length of establishment;
- size of the practice (i.e. no. of partners / directors); and
- none of the partners or directors of the CPA practice has been subject to sanctions imposed by the Institute through its disciplinary proceedings.
Please note that while the President will make the nominations in response to the request from the parties concerned, it is the responsibilities of the parties to:
- reach an agreement among themselves and inform the Institute in writing on whether they would use a list system or a random selection method together with an agreed set of nomination criteria; and
- directly approach the nominated CPA practice(s) which is free to decide whether they will accept such appointment.
Please contact the Institute and your legal/financial advisors if you have any inquiries. The information provided above is for reference only.