May 2021 saw the publication of ICAEW’s 2021 Practice Monitoring Report. The report can be downloaded here. Look out in the months to come for further ICAEW reports on Audit Monitoring and AML Monitoring. Here are five key messages that we picked up from ‘Practice Monitoring 2021:’
- Professional Conduct in Relation to Tax really matters
ICAEW promised in last year’s Monitoring Report that they would be looking at firms’ compliance with Professional Conduct in Relation to Tax (PCRT) – and so it proved. The report provides good detail on ICAEW’s findings with a helpful infographic. Our tips in this area, based on discussions with clients are:
- Remember that PCRT is relevant to all the tax work that your firm does. If members of your accounts department prepare simple tax computations for small businesses there would still be an expectation that they understand what PCRT is and that they comply with the bits that are relevant to this work.
- A key requirement emphasised in ICAEW’s report is the need for ‘documented procedures where a client is reluctant to correct an error.’ This is important as it can link to a need to submit a Suspicious Activity Report to the NCA.
- Where a firm submits a tax return which includes specific items related to tax planning based on third party advice, it’s important that the firm satisfies itself that the advice is reasonable, in accordance with their understanding of the law and that the advisor is appropriately qualified. This is important where clients appoint third party advisors to provide input on R&D tax credit claims.
- It’s the ‘usual suspects’ with client monies
Year in year out, QAD monitoring inspection visits reveal the same issues in respect of client monies: not obtaining a bank trust letter, not carrying out and documenting annual reviews and not using designated accounts when firms hold more than £10,000 for more than 30 days.
The point about the bank trust letter sounds obvious and easy to fix but we understand that this can be very tricky in practice. A delegate on a course recently pointed out the trust letter can be harder to get in situations where the firm’s office account is with a different bank. There are no workarounds though. Firms must persevere.
- Be careful when referring clients to Independent Financial Advisors (IFAs)
This has been a big issue for some time. It’s important that firms only refer clients to financial advisers who give sufficiently independent advice. If a referral is made to a restricted adviser then a documented rationale for this referral is needed, explaining why a restricted adviser can still ensure that a client’s needs are adequately addressed. Important points to note are:
- Advisers that clients are referred to are, we understand, often restricted – so this documented rationale is something that QAD will regularly be seeking.
- It seems that it’s quite often difficult to establish whether an IFA is genuinely independent. A few appropriately phrased open questions might be needed. Does the advisor have access to the whole market in respect of the financial products that the client is seeking?
- Delegates often ask if they should still perform ‘due diligence’ on advisors that they know are independent and whether they should give clients more than one option? There is no formal obligation here but to minimise risk we advocate that firms do their homework and document why they consider a particular IFA a ‘preferred supplier’.
- Practice changes need timely notification
This, again, has been a recurring issue for some time. The report highlights which changes would need to be notified to ICAEW’s regulatory support team within 10 business days and which would not. Don’t forget that certain structural changes can create eligibility issues. A surprisingly common one is where a firm with non-Chartered principals wants to use the term ‘Chartered Accountants’ in its name. This requires ‘affiliate status’ to be sought for the non-Chartered principals. We understand that this is an issue that quite frequently gives rise to regulatory penalties being imposed.
- Assurance is on agenda in 2021/22
As usual the report concludes by commenting on the themes that QAD will focus on during the next 12 months. High up on the list are Solicitors’ Regulation Authority accounts rules, service charge accounts, assurance reports on client assets to the FCA and independent examination of charities. This is perhaps not surprising. There are already questions about such assignments on firm annual returns.
Independent examination can be a tricky one. With the audit exemption threshold sitting at £1M in England and Wales, many more charities require an independent examination than an audit. Lots of firms struggle with the concept though. It’s neither an audit nor an accounts preparation assignment but sits somewhere in the middle. Many struggle to work out exactly where. Time to brush up perhaps!
Peter will be covering these issues and more in our Practice Regulation Update with Edward Rands on 13th October.