Professional Standards recently attended a presentation by the Metropolitan Police on key crime indicators within the accountancy sector. The information was based on real-life investigations and focussed on red flags that accountants may come across when reviewing accounting records which may in certain circumstances raise suspicion, including: Lack of sales records Income received at odd times of day Lack of assets Lack of staff costs Loans For more information click here. If you have knowledge or suspicion of money laundering this should be reported to the firm’s MLRO who will consider whether a Suspicious Activity Report needs to be made to the National Crime Agency.

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (as amended) require firms to take the appropriate steps to identify and assess the risk that they could be used for money laundering, including terrorist financing. The Accountancy AML Supervisors Group (AASG) in the UK has identified those circumstances where there might be a high risk of money laundering or terrorist financing in the accountancy sector. This Guidance also reflects the key risks and threats highlighted within the UK’s National Risk Assessment 2020.

From 1 January 2021 separate Audit Regulations and Guidance for the UK have been introduced.  UK specific Audit Regulations and Guidance are necessary to reflect the new relationship between the UK and EU as a consequence of Brexit.  The draft UK Audit Regulations have been published on the Institute’s website and are applicable from 1 January 2021.  Approval of the final UK Audit Regulations and Guidance is pending. From 1 January 2021, firms and individuals registered by the Institute as statutory audit firms and statutory auditors in the UK will comply with the new UK Audit Regulations and Guidance.   The Institute’s Audit Regulations and Guidance effective from 1 January 2020 continues to apply in the Republic of Ireland (‘ROI’) but will no longer apply in respect of the UK after 31 December 2020.    From 1 January 2021 an audit firm registered by the Institute in both ROI and the UK will have to ensure compliance with two sets of Audit Regulations. The UK Audit Regulations and Guidance do not bring significant changes for UK registered audit firms. The main change for firms pertains to the eligibility of EEA auditors and EEA audit firms for inclusion in the majority of owners and managers of a UK audit firm.  We consider that this change is unlikely to have an impact on firms currently registered by the Institute for audit purposes in the UK.  The ownership rules for a UK registered audit firm from 1 January 2021 require that the majority of the voting rights on the ownership body and management body of the firm are held by: Individuals holding an audit qualification from a UK RSB (including Chartered Accountants Ireland) Audit firms approved by a UK RSB (including Chartered Accountants Ireland) Individuals who hold EEA qualifications, who have passed or applied to sit a relevant aptitude test by 31 December 2020. Until 31 December 2020 EEA auditors and EEA audit firms could also be counted towards the majority of owners and managers in a UK audit firm.  The change in the ownership rules impacts firms who count EEA qualified auditors (who are not qualified by a UK RSB) and EEA audit firms in their majority of qualified owners and managers.  From 1 January 2021 the qualified majority of owners and managers can only include EEA auditors (who are not qualified by a UK RSB) if the EEA auditors have passed, or applied for, or passed, a relevant aptitude test before 31 December 2020.

As the end of the Brexit transition period approaches on 31 December 2020, clarity is finally emerging in relation to the implications for audit registration in Ireland and the UK after the transition period. The important news for auditors and audit firms registered by the Institute is that the status quo will continue for the majority of firms in both Ireland and the UK after 1 January 2021. Irish audit registration – after the Brexit transition period Since 2018 Brexit has cast uncertainty over the position of ‘UK-based’ (however interpreted) auditors registered by the Institute vis-à-vis eligibility to audit Irish entities post Brexit.  The Institute has kept members informed of any developments in this regard and has outlined our position that there is no basis for the Institute to remove its ‘UK-based’ auditors from the Irish audit register as a consequence of Brexit unless there is a change in Irish company law or a formal direction from IAASA to the Institute.    Recent engagement with IAASA has confirmed that there will not be any legislative change or regulatory direction in this regard. Therefore the status quo will continue in Ireland from 1 January 2021 for the Institute’s UK-based auditors and audit firms, as long as those individuals and firms continue to meet the eligibility criteria (unchanged) set out in the Institute’s Audit Regulations and the Companies Act 2014.  The Professional Standards department will be writing to audit compliance principals of statutory audit firms in more detail in the coming weeks. It is welcome news for the auditors and audit firms registered by the Institute in Ireland and based outside of the jurisdiction, that there will be no change to their status on the Irish audit register from January 2021. In the longer term, however, Brexit may impact on the number of UK-based firms on the Irish audit register as the audit regulatory requirements in Ireland and the UK continue to diverge over time.   Audit firms who are registered in Ireland but do not have any Irish audit clients may find that the burden of complying with distinctly Irish regulatory requirements is no longer worthwhile and may choose to cease their Irish audit registration. Related Matters regarding Irish audit registration While not of direct relevance to Institute members and audit firms, it is worth mentioning that Irish company law provides a mechanism for approval of third country auditors in Ireland.  From 1 January 2021 auditors based in the UK who are not a member of the Institute or another Recognised Accountancy Body would have to avail of this mechanism if they want to be eligible to audit Irish entities. The Companies Act 2014 in Ireland provides for the approval of third country auditors as Irish statutory auditors where certain criteria are met.  These criteria include the existence of reciprocal arrangements regarding auditor approval between Ireland and the third country concerned as well as the completion of an aptitude test by the third country auditor.  The Companies Act 2014 also allows for exemption from that aptitude test to be granted in certain circumstances.  We understand that IAASA and the Financial Reporting Council (‘FRC’) in the UK are working on developing reciprocal arrangements which would support the operation of a regime in Ireland for approving third country auditors from the UK.   The Institute currently administers an aptitude test for third country auditors and is engaging with IAASA in relation to guidelines for granting exemptions from the aptitude test. UK audit registration – after the Brexit transition period After 31 December 2020, audit registration in the UK will continue without interruption for individual statutory auditors (responsible individuals) registered by Chartered Accountants Ireland given the status of the Institute as a Recognised Supervisory Body (‘RSB’) in the UK, regardless of whether the responsible individual is based in the UK or Ireland.  There will be no change to the UK audit registration of the majority of audit firms registered in the UK by Chartered Accountants Ireland regardless of whether the audit firm is based in Ireland or in the UK.  Audit firms currently registered in the UK by the Institute can retain UK audit registration after 31 December 2020 if the UK firm ownership rules are met.  The ownership rules for a UK registered audit firm after 31 December 2020 will require that the majority of the voting rights on the ownership body and management body of the firm are held by: Individuals holding an audit qualification from a UK RSB (including Chartered Accountants Ireland) Audit firms approved by a UK RSB (including Chartered Accountants Ireland) Individuals who hold EEA qualifications, who have passed or applied to sit a relevant aptitude test by 31 December 2020. The change in the ownership rules impacts firms who count EEA qualified auditors (who are not qualified by a UK RSB) and EEA audit firms in their majority of qualified owners and managers.  From 1 January 2021 the qualified majority of owners and managers can only include EEA auditors (who are not qualified by a UK RSB) if the EEA auditors have applied for, or passed, a relevant aptitude test before 31 December 2020. This change may affect a small number of firms.  

Your Individual Annual Return 2020 is available for completion online.  Please be reminded that this is due to be submitted by 30 October 2020.Click here for your Individual Annual Return.We appreciate that this is a difficult period for members due to the Coronavirus and that members will be prioritising matters differently than they would in normal times. If unable to meet this timescale please contact Individual Annual Return.

Chartered Accountants Ireland is pleased to announce the publication of the draft AML Guidance for the accountancy sector.This is draft guidance pending approval from HM Treasury. This guidance is based on the law and regulations as of 10 January 2020 – this incorporates amendments required as a result of the UK’s transposition of the 5th Money Laundering Directive. A brief overview of the main changes is available here.

Our Individual Annual Return 2020 is available for completion online.  Please ensure it is submitted by 30 October 2020.Click here for your Individual Annual Return.

The Government has just issued a Consultation on the new Economic Crime Levy announced in the March 2020 Budget. The levy will fund new government action to tackle money laundering, and help deliver the reforms committed to in the 2019 Economic Crime Plan.  The consultation seeks views on what the levy will pay for, how it should be calculated and distributed across the anti-money laundering (AML) regulated sector, and how the levy should be collected. The closing date for responses is 13th October 2020.

Please be advised that Regulatory Fees for the year 2020 will be issued during the month of January 2020.  Notification will be sent from Professional Standards when these are available for payment.

The Professional Standards Department (PSD) Quality Assurance Team has recently compiled a list of common matters arising on audit and investment business inspection visits, which are set out below. Please note that, where PSD returns to firms that have had a relatively recent visit, it conducts follow-up procedures to ensure that the firm has taken action to address matters raised at the previous visit. Audit Inspections Financial  Reporting Firms need to perform audit procedures to evaluate whether the overall presentation of the financial statements, including the related disclosures, is in accordance with the applicable financial reporting framework which, in recent years, has been substantially changed by the introduction of FRS 100-105 and amendments to company law. PSD found that, for the most part, firms had adequately addressed the requirements of FRS 102 and, in RoI, the Companies Act 2014 (‘CA 2014’) through the use of checklists. However, non-application of FRS 102 by audit clients was sometimes not identified. Firms should ensure that their audit procedures to assess the appropriateness and completeness of disclosures are up to date for the relevant financial reporting regimes. Certain common omissions were identified: Statement of Changes in Equity or Statement of Cash Flows, where relevant; Significant judgements and key sources of estimation uncertainty in relation to amounts recognised in the financial statements (FRS 102 s8.6-8.7); Where relevant, material uncertainties related to events or conditions that cast significant doubt upon the entity’s ability to continue as a going concern (FRS 102 s3.8-3.9); The measurement basis (or bases) used for financial instruments and the other accounting policies used for financial instruments that are relevant to an understanding of the financial statements (FRS 102 s11.40); Disclosures relating to creditors required by CA 2014 Schedule 3, such as terms of payment/repayment and the rate of any interest payable on debts. (N.B.The specific FRS 102-related matters noted above relate to financial statements prepared in accordance with the full requirements of FRS 102 and may not be relevant to financial statements where the small/micro companies regime is applied.) International Education Standard (IES) 8 (Revised) IES 8 Professional Competence for Engagement Partners Responsible for Audits of Financial Statements (Revised) was issued by the International Accounting Education Standards Board (IAESB) in December 2014 and is effective from 1 July 2016. Its objective is to establish the professional competence that professional accountants develop and maintain when performing the role of an Engagement Partner. During an audit monitoring visit, the inspector will make enquiries to assess whether a firm is familiar with IES 8 (Revised), including consideration of the learning outcomes which are listed in Table A to the Standard. Firms can obtain a copy of IES 8 (Revised) at: http://www.ifac.org/system/files/publications/files/IAESB-IES-8.pdf Investment Business inspections Investment Business (IB) inspections carried out by PSD over the last few years had focused on firms holding IB1/IB2 authorisation. However, PSD is now conducting an increased number of IB inspections to firms holding all levels of IB authorisation, including a sample of firms holding IA1/IA2 authorisation. Firms should be mindful of, and ensure they address, the following  matters Investment business procedures (IBR 2.56) All authorised firms are required to establish and maintain adequate written investment business procedures. These should include managing conflicts of interest, maintaining ‘Chinese Walls’ and the consequences of breaching them, along with the handling of errors and complaints. A firm must adequately train its principals carrying on investment business and its employees using these procedures. Training (IBR 2.60) Authorised firms must make arrangements to ensure that principals and employees involved in investment business maintain an appropriate level of competence and comply with Institute CPD requirements. Firms authorised in Category IA2 and above must make arrangements to ensure compliance with the Central Bank Minimum Competency Code, which has recently been updated. A copy of the Code can be obtained on the Central Bank of Ireland’s website. Investment Business Compliance Review (IBR 2.58) An authorised firm must carry out an Investment Business Compliance Review (IBCR) at least annually. PSD found that, for some firms, an annual IBCR had not been carried out, or did not include a whole firm review, a review of accounting records and a sample of client files. Some IBCRs did not identify different types of IB advice provided by the firm or non-compliance with the IBRs. Corrective action was not always taken in a timely manner. Engagement letters (IBR 3.19-3.20) PSD found that some firms did not have an engagement letter in place, or the letter had not been agreed with the client prior to investment business advice being provided, as required by IBR 3.19 or did not include the minimum details required by IBR 3.20. Commission consent and disclosure (IBR 3.30-3.32) If a firm receives commission it must account to the client for that commission, and both the terms (%) of the commission and the amount (€/£) must be disclosed. In cases where the firm retains the commission, it must have the client’s written consent to do so. Consent to retain commission can be obtained in the client engagement letter. The Quality Assurance Committee views non-compliance with commission consent and disclosure requirements very seriously. Section 30 receipts (IBR 4.44-4.46) Firms must issue receipts when they receive client premiums or investment business clients’ money. Details of what must be included on the receipt are specified in IBR 4.45. Other matters Firms should ensure that they are aware of their category of IB authorisation and the limits of that category. Category IA2 is required to hold client premiums; Category IB2 is required to hold investment business clients’ money; and If handling or holding client premiums or investment business clients’ money, the firm must appoint an independent accountant and submit an independent accountant’s report to the Institute. Carrying on investment business, when not authorised to do so, is an offence under the Act. Firms may wish to review their category of investment business authorisation and assess whether it is suitable for their needs. Firms should refer to Schedule 1 to Chapter 1 of the IBRs for activities which may be undertaken under the various categories. For further details on the above matters, please look out for PSD’s forthcoming Regulatory Bulletin. For advice or support on the above matters, firms may contact, in strict confidence, the Practice Consulting Team, which is independent of the Professional Standards Department.