Practice Assurance and Money Laundering Update 2019 Presented by John Selwood
Redcentric PLC Findings
Redcentric PLC Findings Planning failures • Not assessed as higher risk • Superficial preliminary AR • ‘Fraud in the financial statements is unlikely due to the competence of the finance team’
Redcentric PLC Findings Fieldwork failures • Cash balances • Revenue and debtors • Expenses and creditors
Highlights ICAEW & ACCA overview ICAEW Practice Assurance report New AML rules and refresher Compilation hot topic – going concern FRC Cases & QAD Audit monitoring report International Education Standards
Professional discipline - QAD & ACCA
ICAEW • Engagement in public practice without holding a practicing certificate • Fraud/dishonesty • Preparation and filing of financial statements including material errors • Failure to follow the required approach regarding professional clearance • Non-compliance with auditing standards • Failure to comply with the due diligence requirements of the AML regime. • Negligent tax advice • Failure to comply with requirements in respect of client monies regulations
ACCA • 1. Know the boundaries of your comfort zone • 2. Use letters of engagement to avoid scope creep • 3. Look for scale • 4. Don’t cut corners • 5. Coach and delegate effectively • 6. See the positives in practice/quality assurance procedures
ACCA visits
ACCA visits • Risk based approach • Examination of procedures, processes Key and quality controls features • Inspection of audit files • Focus on assisting firms • Root cause analysis
Practice Assurance Review
Anti-money laundering MLROs did well with MLR 2017 good staff training Commercially available MLR systems worked better than those developed in-house Be aware of sources for electronic checks ICAEW review may get tougher!
GDPR 96% had registered with The good the Information Commissioner’s Office 99% had considered what changes they needed to make 83% had determined and documented the lawful basis for processing data 86% had procedures in place relating to personal data breaches 81% had nominated a data protection lead or DPO
GDPR only 71% of firms Not so good reviewed had carried out an information audit for GDPR 29% had not fully considered how to consider compliance with the regulations on an ongoing basis 33% still needed to consider the role of their websites in terms of what information they collected and how it is processed
Client money No trust letters 1/6 th of firms No designated bank accounts for amounts over £10,000 for 30 days Implementation of Regulation 8A – you are not a bank!
Gifts and hospitality Some firms didn't Issues have policies Monetary limits varied for gifts £25 - £1,000 Hospitality thresholds £25 - £100 per head Up to £10,000 for non- audit clients!! More importantly – you have to have a policy and communicate it.
Client 2019 visits Will focus on Payroll Conflicts of interest Whistle- blowing
New Anti-money laundering directive and refresher
5 th Anti- Money Laundering Directive Extending AML requirements to virtual currency exchanges, Legislation wallet providers, and letting intermediaries where monthly rent is over 10,000 euros; Updates to CDD provisions to reflect increasing use of electronic due early due diligence; and also documenting difficulties in the verification process where the senior managing official is a 2020 beneficial owner of the entity; A responsibility when doing CDD to check that the client has filed beneficial ownership details with the registrar (i.e. Companies House) and report any discrepancies you identify. The Each member state will produce a list of public functions that would make someone a PEP. All self-regulatory bodies (including ICAEW) will need to publish highlights an annual report about their compliance monitoring and detected AML breaches. Public bodes will be required to publish information on the AML include: risks they have identified, and what their response has been including the human and financial resources applied.
4 th Anti- Money Laundering Directive - refresher Approved by • EU member states required to EU Parliament implement by 26 June 2017 20 May 2015 • Launched by HM Treasury in Consultation September 2016 • Consultation closed 10 November 2016 Money • Issued in draft in March Laundering • Further consultation – closed 12 April • Final regulations issued 22 June 2017 Regulations
4 th Anti- Money Laundering Directive - refresher RISK
Risk assessment – Why? Normal due Low risk diligence Enhanced Higher risk due diligence Run far, run High risk fast?
So what? "Some of those accountants involved in money laundering cases are assessed to be complicit or wilfully blind to money laundering risks, though the majority of these cases are likely to involve criminal exploitation of negligent or unwitting professionals.''
Risk assessment – by service Lower risk • Financial Statement preparation • Management Accounts preparation and bookkeeping • Payroll • Statutory audit • Internal audit • Taxation compliance and planning services • VAT compliance and planning services • Company Secretarial work
Risk assessment – by service Higher risk • Handling client money where the source of the funds is not proven and where assets are to be purchased with the monies • Implementing offshore company and trust structures, where tax evasion may be the primary motive • Handling insolvent estates where assets are tainted by crime • Taxation advice where the client may be involved in tax evasion • Forensic accountancy services where crime may be involved
Risk assessment – the client’s circumstances Higher risk • Clients who are high profile and attract controversy • Those clients involved in higher risk sectors and jurisdictions • Any clients where the firm has concerns that they could potentially be involved in illegal activities (e.g. tax evaders seeking advice to resolve their affairs, and certain forensic work connected to fraud and other crime)
Simplified due diligence SDD Who? • Credit or financial institution subject to the provisions of the MLR • Companies listed on regulated market or equivalent overseas requirements • UK public authorities and certain other public authorities
Question? Can you rely on third parties, like lawyers or other accountants? • In theory yes, in practice probably not • Assess the risks • Obtain permission to rely upon third party due diligence • Consider obtaining copies
Question? What if the client is not physically present? • Maybe OK • Get more evidence • Obtain notarised versions of documents?
Ongoing due diligence • 1. Have there been any changes in the directors or partners? Have we got ID? • 2. Have there been changes to shareholdings / beneficial owners? • 3. Has there been any change to the nature of the business? Checklist • 4. Are there any unusual transactions we have not been able to substantiate? • 5. Are there any cash transactions outside the normal transactions of the business we cannot substantiate? • 6. Are there any other issues which increase the level of perceived risk?
AML Reporting – the basics Proceeds from Knowledge or crime suspicion For tax offences intent is usually Warn once, then needed for it to report be criminal
Going concern
ISA 570 Going concern How to restore public confidence?
Going Concern – an accounting issue Going Alternative concern basis basis ..where management Disclose ‘material intend to cease or uncertainties casting there is no realistic significant doubt’ alternative to cease Qualified accountants are not allowed to have their names associated with misleading financial statements
The going concern review NOT 12 months from the balance sheet date at least 12 months from accounts approval date
The going concern review NOT 12 months from the balance sheet date at least 12 months from accounts approval date
Method of assessment Small Companies Probably less formal Profitable Less evidence Companies More evidence – Financial distress cashflow forecasts etc Get evidence – Group support letter of support
Going concern – material uncertainty FRS • ..adopt the going concern basis of accounting and must make 102 appropriate disclosures FRS • ..adopt the going concern basis of accounting and are encouraged 102 1A to make appropriate disclosures FRS 105
Going Concern – an accounting basis Alternative basis? • Break up basis? Going concern • Going concern basis basis with impairment reviews
Audit report
ICAEW Audit monitoring visits
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