The duty to report misconduct or incompetence within the accountancy profession forms a critical part of ICAEW’s disciplinary framework.
Until recently, this duty only applied to ICAEW members. Since 1 June 2023, it has been extended so that firms are also responsible for reporting conduct or incompetence matters to ICAEW’s Conduct Department.
The idea behind the extension is to encourage greater awareness and vigilance among firms. “We don’t necessarily anticipate this change will affect the type, or even the number, of matters referred to us,” says Emily Healy-Howell, Regulatory & Conduct Director at ICAEW. “But there are now consequences for firms, as well as for individuals, if they fail to report something that could potentially be a breach under the disciplinary framework.”
“It means we could now take a firm through our disciplinary process if we feel it has failed to report something,” she explains. “And this could result in sanctions and reputational damage.”
Under the revised requirements, laid down in Disciplinary Bye-Law (DBL) 6, every member, firm, affiliate or relevant person is under a duty to report matters that potentially breach the DBLs. Relevant persons are provisional members, Foundation Qualification Holders, Provisional Foundation Qualification Holders and Certificate in Finance, Accounting and Business (CFAB) students.
All those regulated by ICAEW now have equal responsibility in terms of the duty to report misconduct.
Removing an unnecessary step
Alongside extending the duty, ICAEW has also removed the requirement for both firms and individuals to consider whether it is in the public interest to make a report.
“We’ve done this because it’s a difficult concept for potential referrers to grapple with before deciding to refer something to us,” Emily explains. “It is also ICAEW’s task to make that public interest assessment.”
“When any report comes in, it goes through an assessment process first before we investigate it,” she adds. “And one of the things we always look at is whether it's in the public interest to proceed or not. Therefore, not only is it a task that is rightly ours, we do it already.”
“It was an unnecessary step and it was also a confusing one for people to weigh up and grapple with.”
No change in what to report
“From a firm's perspective, the specific responsibility and potential reputational damage from failing to report is new,” says Emily. “But the types of issues that need reporting have not changed.”
“What needs reporting has always been linked to our DBLs, and remains so,” she emphasises.
Matters that need referring primarily come under DBL 4. “That’s what makes somebody potentially liable to disciplinary action,” she explains. “And there's no change in the type of matter we want reporting to us.”
Updated guidance on the duty, published in June 2023, includes two appendices outlining examples of what needs reporting relating to professional, workplace and personal activities. Nothing in these lists has changed.
“They contain all the same sorts of things that we have always taken through our disciplinary processes,” stresses Emily. “But it’s important to say that these lists are also not exhaustive. They are just examples.”
Supporting a safe reporting culture
The duty to report is not going to generate any new training requirements for firms, and Quality Assurance Department (QAD) reviewers will not expect to see any evidence of specific staff training on visits.
What reviewers will expect to see in a broader sense is that the firm's overall culture makes staff feel safe to flag issues they think are worthy of reporting.
“We’d expect a culture whereby if a member of staff came across something they thought wasn't right, they would feel comfortable escalating that to their line manager,” explains Emily. “Then their line manager would also feel comfortable in escalating it. That's how we would expect it to work in a firm.”
“We’d advise firms to be reinforcing this kind of culture and encouraging and supporting staff in coming forward to report anything they don't think is right.”
Firms should also be familiarising themselves with the updated guidance on the duty to report, and making sure they are aware of typical circumstances where they might find behaviours or actions that require reporting.
One example might be picking up an audit from another firm, or acquiring another firm, and noticing something the previous firm or partners have done that potentially amounts to misconduct or incompetence.
Other situations could include the conduct of an individual staff member, for example misappropriation of funds or harassment, which has led to internal disciplinary procedures.
Who reports on the firm’s behalf?
There is no role or person from whom ICAEW expects to receive a report. “We're not being prescriptive about who we would expect to hear from on behalf of a firm,” says Emily.
The duty is on the firm and it’s the firm’s responsibility to decide how to execute that duty. “Different firms are structured in different ways,” she explains. “In a bigger firm, there might be partners responsible for distinct areas of the business, but in a smaller firm it might be the senior partner that takes on several functions.”
The nature of what’s being referred might also influence who is best placed to make the report. For example, if HR has done an investigation, someone in that department might be better placed to do the referral report because they're closer to it.
“Regardless of who is making the report on the firm’s behalf,” says Emily, “it’s important that when completing the reporting form, they make it clear they are making the referral for the firm.”
If in doubt, report
Given the consequences of failing to meet the new duty, if a firm has any doubts, it’s better to report the matter than hold back.
“You can also contact ICAEW’s helpline if you want to have a conversation with someone before reporting,” says Emily. “The advice in grey areas is likely to be to go ahead and report. But they can also advise you if it’s obvious that a matter is not relevant.”
“If you're not sure whether something should be reported, don't feel hesitant or worried about referring it to us,” she emphasises.
“As an improvement regulator, ICAEW is committed to strengthening trust in the accountancy profession, so we want to make sure we're picking up on everything we should be,” she adds. “And the extension of the duty is designed to support that.”
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