Disciplinary update: March 2023

Since the last update in February, one appeal finding has been published along with 17 Consent Orders.

The appeal panel considered a member’s appeal against the sanctions imposed by a disciplinary tribunal in relation to two failures to provide information and explanations requested under Disciplinary Bye-law 13. The appeal was dismissed and the member required to pay the costs of the appeal in addition to the original sanction.

Consent orders, made by the Investigation Committee and published this month, included a number of significant audit cases, a number of insolvency issues and other cases relating to Clients' Money Regulations, assurances given to the Quality Assurance Department (QAD) and a lack of objectivity.

A firm was severely reprimanded and fined £102,200 for its audits of two clients over two years where their unqualified audit reports stated that the firm had complied with the APB’s Ethical Standards for Auditors when a network firm had accepted an engagement to prepare current or deferred tax calculations that were, or may reasonably have been expected to be, used when preparing accounting entries that were material to the financial statements, in breach of paragraph 99 of Ethical Standard 5.

That network firm was itself severely reprimanded and fined £119,700 for its audits of the same two clients in two later years when its unqualified audit reports stated that the firm had complied with the APB’s Ethical Standards for Auditors when it had also accepted an engagement to prepare current or deferred tax calculations that were, or may reasonably have been expected to be, used when preparing accounting entries that were material to the financial statements, in breach of paragraph 99 of Ethical Standard 5.

Another firm was severely reprimanded and fined £91,000 in relation to its audit work over three consecutive years of financial statements for one client where in each year their audit report stated that the audit had been conducted in accordance with International Standards on Auditing (UK and Ireland) and that the financial statements had been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (UK GAAP) when:

1. the firm failed to prepare sufficient audit documentation, on a timely basis, to enable an experienced auditor, with no previous connection with the audit, to understand the nature, timing and extent of the audit procedures performed, and the results of the audit procedures performed, and the audit evidence obtained in relation to the appropriateness of the membership subscription revenue recognition policy, in breach of International Standard on Auditing (UK and Ireland) 230 ‘Audit documentation’; and/or
2. the financial statements were not prepared in accordance with Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ as membership subscription revenue was not recognised on a basis that reflects the timing, nature and value of the benefits provided.

A firm was reprimanded and fined £16,170 because it had issued an audit report on the group financial statements of ‘A Plc’ which stated that the audit of the group financial statements had been performed in accordance with International Standards on Auditing (UK) and applicable law, when: 

1. the auditor failed to obtain sufficient appropriate audit evidence in respect of the discount rate to be used in relation to the valuation of a loan note instrument, in breach of International Standard on Auditing (UK) 500 ‘Audit evidence’; and/or
2. the auditor failed to document discussions held with management and/or internal experts in respect of the discount rate to be used in relation to the valuation of a loan note instrument, in breach of International Standard on Auditing (UK) 230 ‘Audit documentation’.

That same audit report had also stated that the group financial statements had been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union, when:

1. the earnings per share calculation disclosed in the financial statements failed to adjust for the denominator post share consolidation; and/or
2. the earnings per share calculation disclosed in the financial statements incorrectly included profits from discontinued operations. This is in breach of International Accounting Standard 33 ‘Earnings per share’.

Another firm was reprimanded and fined £7,700 because it had issued an unqualified audit opinion on the financial statements of a plc client, which stated that the audit had been conducted in accordance with International Standards on Auditing (UK), when:

1. the firm failed to obtain sufficient appropriate audit evidence, in breach of paragraph 6 of ISA 500 ‘Audit Evidence’, in respect of material costs incurred relating to the start-up of ‘B Limited’; and 
2. the firm failed to ensure material misstatements were recorded in the consolidated financial statements in breach of ISA 450 ‘Evaluation of misstatements identified during the course of the audit’.

This firm also issued an unqualified audit opinion on the financial statements of another plc client which stated that the audit had been conducted in accordance with International Standards on Auditing (UK), when the firm failed to obtain sufficient appropriate audit evidence, in breach of paragraph 6 of ISA 500 ‘Audit Evidence’ in respect of a dividend in specie payment.

A member was severely reprimanded and fined £12,250. The member was the responsible individual for the preparation of Solicitors Regulation Authority (SRA) Accountant’s Reports submitted for a client for two years, and the member:

• failed to identify that banking facilities were being provided through client accounts in breach of Rule 14.5 of the SRA Accounts Rules and contrary to section 130.1 of the Code of Ethics; and
• failed to identify those payments relating to private loans were being made from one client to another in breach of Rule 27.2 of the SRA Accounts Rules and contrary to section 130.1 of the Code of Ethics.

A member was severely reprimanded and fined £6,640 because they had: 

• prepared unaudited financial statements for two companies which did not comply with UK GAAP as no amortisation was provided on goodwill as required by the Financial Reporting Standard for Smaller Entities (FRSSE 2008); and
• explained the accounting treatment applied to the goodwill included within the accounts for those companies in a letter which they sent to the company’s liquidators, which was not supported by the working papers held.

A firm was severely reprimanded and fined £7,700 in relation to breaches of:

• regulation 9a of the Clients’ Money Regulations which requires that all money which is client’s money be held in a client bank account. It transferred client monies from a designated client money account to a non-client money account;
• regulation 13 of the Clients’ Money Regulations, when it failed to transfer money, which exceeded £10,000 for more than 30 days for a single client into a client bank account designated by the name of the client; and
• regulation 27b of the Clients’ Money Regulations as the firm failed to carry out and document annual client money regulation compliance reviews.

A member was severely reprimanded and fined £7,500 firstly for breaching s120.1 and/or s120.2 of the ICAEW Code of Ethics relating to the fundamental principle of objectivity in that they allowed undue influence to compromise their professional judgment as a single joint expert (SJE) resulting in the court terminating their engagement as the SJE and secondly for engaging in public practice without a practising certificate.

An insolvency practitioner (IP) was severely reprimanded and fined £12,500 because:

• in the lead up to their appointment as liquidator of a limited company, they failed to take reasonable steps to evaluate the threats to compliance with the fundamental principles in the Code of Ethics that they had identified contrary to paragraph 400.17, part D of ICAEW’s Code of Ethics;
• they also failed to maintain sufficient contemporaneous records to demonstrate the steps they took and the conclusions they reached in identifying, evaluating and/or responding to any threats to the fundamental principles, contrary to paragraph 400.74, part D of ICAEW’s Code of Ethics (effective 1 January 2011); and/or
• maintain sufficient records to enable a reasonable and informed third party to reach a view on the appropriateness of their actions, contrary to paragraph 400.75, part D of ICAEW’s Code of Ethics; and
• prior to their appointment as liquidator, they sent a letter to the creditors of that limited company which failed to report openly and transparently the relationship between two other limited companies, contrary to paragraph 400.36, part D of ICAEW’s Code of Ethics.

That same IP was also severely reprimanded and fined £20,000 when they:

• failed to properly assess whether an administration was an appropriate procedure in respect of a limited company contrary to paragraph 400.4(c), part D of ICAEW’s Code of Ethics (fundamental principle of professional competence and due care) because they failed to act diligently and in accordance with applicable technical and professional standards;
• in the lead up to and during their appointment as administrator and/or in the lead up to their appointment as liquidator of that limited company, failed to take reasonable steps to evaluate the steps to compliance with the fundamental principles that they had identified, contrary to paragraph 400.17, part D of ICAEW’s Code of Ethics;
• also failed to maintain sufficient written contemporaneous records to demonstrate the steps they took and the conclusions they reached in identifying, evaluating and/or responding to any threats to the fundamental principles, contrary to paragraph 400.74 of ICAEW’s Code of Ethics; and/or
• failed to maintain sufficient records to enable a reasonable and informed third party to reach a view on the appropriateness of their actions, contrary to paragraph 400.75 of ICAEW’s Code of Ethics.

Another IP was reprimanded and fined £5,000 because in their capacity as creditors’ voluntary liquidator (CVL), they sought to recover preappointment remuneration which they were not entitled to draw in 13 companies listed, and the drawing of any or all of the fees listed breached rule 6.7 of The Insolvency (England and Wales) Rules 2016.

A further IP was reprimanded and fined £4,500 for similar breaches as CVL in relation to preappointment fees on nine cases, and three other IPs were each reprimanded and fined £4,000. One in relation to preappointment fees drawn on four cases, another in relation to three cases and the last in relation to two cases.

Further details can be found on our Disciplinary Database or please visit our Public Hearings page.