The Institute of Chartered Accountants in England and Wales (ICAEW) has recently published the 2010 Practice Assurance Report. This gives feedback on the results of 2,331 Practice Assurance visits in 2010.
Of the 2,331 firms reviewed, 65 were reported to the Practice Assurance Committee. The report stresses that this action can often be avoided by a firm being proactive, with a number of instances being simply due to the firm not replying to the closure meeting notes or reports, even after reminders were sent.
The main issues arising on the 2010 Practice Assurance visits were:
Money Laundering Regulations
The most common issue arising is non-compliance with the Money Laundering Regulations 2007. There are two key concerns:
- firms don’t always identify all the possible triggers to perform ongoing client due diligence
- some firms do too much initial client due diligence.
The QAD noted that firms often take a belt and braces approach to their due diligence the first time they complete it, but then forget about the requirement to revisit their risk assessments. This is also a common finding following SWATUK Practice Assurance Reviews.
The report also notes that those firms that did not carry out a regular anti-money laundering compliance review were the firms that had other issues in complying with the Money Laundering Regulations.
SWATUK provides a wide range of support in this area; including manuals, training, visits, a technical helpline and compliance software. For more information email membership@the2020group.com.
Clients’ Money Regulations
Issue “number 2” is listed as non-compliance with the Clients’ Money Regulations. The points identified during QAD visits ranged from simple matters (such as not being able to locate the bank trust letter) to more serious issues (lack of 5 weekly reconciliations and missing annual compliance review).
For more information on SWAT UK Clients’ Money reviews (these can be combined with other visit types) call us on 0845 450 5555.
Statutory Accounts
The report notes that preparing appropriate statutory accounts for corporate clients remains a problem for some firms; with one third of accounts reviewed containing disclosure errors. It is recommended that firms use commercial software, disclosure checklists and internal quality control review or a mix of the three before accounts are sent to the client for approval.
Engagement letters
25% of the firms visited by the QAD needed to make changes to their terms of engagement to ensure inclusion of the matters which must be communicated in writing:
- the basis on which the firm charges fees; and
- the client’s right to complain to the ICAEW.
There are a range of template engagement letters in the SWAT UK Practice Assurance Manual. Call us on 0845 450 5555 or visit www.swat.co.uk/pam.aspx for details.
Provision of Services Regulations 2009
Linked with engagement letters to some extent is the Provision of Services Regulations 2009. This requires a range of information to be provided to clients and this can be in the firm’s:
- Engagement letter / terms of business;
- Website; or
- Reception area
Several firms have not yet taken action in this regard.
Registered office address
A finding of both the QAD and SWAT UK reviewers is that approximately 20% of firms do not display an up to date list of companies that use the address as their registered office.
A procedure should be implemented to keep this list under review and up to date.
ICAEW’s Code of Ethics
ICAEW’s Code of Ethics changed with effect from 1 January 2011 and the prohibition against firms making loans to or receiving loans from clients has been removed.
The changes have introduced the concept of considering the threats of any such loan before accepting it, and what safeguards the firm might be able to put in place to mitigate the threats. Firm’s should have a procedure to ensure that these checks are carried out where required.
The ICAEW will be issuing guidance on the changes later this year.
Other points to watch
In addition, the 2009 ICAEW Practice Assurance report identified the following issues which should continue to be monitored:
- Ensuring that there is adequate PI insurance in place – including cover for connected entities (such as payroll companies) where relevant
- Using the correct ICAEW logo in line with ICAEW guidance and permissions.
- Appropriate registration under the Data Protection Act.
- CPD compliance - using the ‘reflect, act, impact’ model.
- The annual practice assurance compliance review. Although the regulations do not require an annual Practice Assurance compliance review, the QAD generally finds fewer reportable issues where firms do undertake a regular review. SWATUK would be pleased to work with any firm in this regard so please email membership@the2020group.com fro further information.
The future
2012 will see the start of the second cycle of Practice Assurance Monitoring visits. In response to a Professional Oversight Board recommendation, the visit model will become more focused and risk based. Details of the new model have yet to be announced but we do know that there will pilot visits later this year.
It is anticipated that more use will be made of telephone visits and “surgeries” in 2012. These are already available to firms with relatively low income and a low-risk client base.
