Complaints: common pitfalls

Hugh Clark looks at some of the (easily avoidable) ways in which members become the subject of complaints to the Institute

I shall describe here some ' common pitfalls' that the ICAEW Professional Standards Office has seen in practice, but which can readily be avoided. For guidance on avoiding complaints generally, please refer to 'Cautionary Tales' in the September 2001 issue of Accountancy (pp 140-141). That article also makes suggestions about dealing with complaints if and when they arise.

Practising certificates - I don't need one … do I?

The Institute's bye-laws provide that a member is only entitled to engage in public practice in the UK, or any other member state of the EU, if he holds a practising certificate. Public practice is defined in a Council statement, which appears in the Members' Handbook 2001 (pp 151-152).

Some members hold a certificate from, or are members of, another body and their practice relates only to the kind of work the other body specialises in (eg, the Insolvency Practitioners Association or the Chartered Institute of Taxation). They may consider that in these circumstances they are not 'in practice' as far as the Institute is concerned. Wrong! If the work you are doing comes within the definition of practice in the Council statement, you need a practising certificate from the Institute.

Membership of another body is irrelevant for this purpose.

It follows that if you are a member of the Institute and of another European accountancy body that enables you to practise in a particular EU country, and you do practise there, you are required to hold a practising certificate from the Institute. Practising without one is a disciplinary issue, which is likely to attract significant penalties.

Have I the skills and resources to do this work?

One of the five fundamental principles laid down in the Guide to Professional Ethics is that: 'A member should not accept or perform work which he or she is not competent to undertake unless he obtains such advice and assistance as will enable him competently to carry out the work.'

This principle may seem obvious, but investigation of complaints sometimes shows that a member has undertaken work without sufficient skills and/or resources to achieve a professional standard. Public criticism as a result of work that the member or firm was not competent to do is discreditable to both the member concerned and the Institute. (See the case study opposite.)

Managing potential conflicts of interest: clients

Accountants often find themselves preparing accounts for partnerships or small companies where the interests of different partners or shareholders may conflict. In extreme cases, you may find it appropriate to decline to act, but in most cases proper management of a potential conflict will be possible.

The Institute receives many complaints alleging unfair preference for one or another interested party in relation to the way accounts have been prepared. Often, such complaints could have been avoided had some or all of the following steps been taken:

  • Both/all client parties should be given the opportunity to attend any meeting to discuss the accounts
  • Both/all client parties should be supplied with copies of draft accounts, adjustments made to the accounts, and so on.
  • There should be an internal review of the accounts by a second partner or senior individual.
  • All the client parties should be informed about a second contact within the firm to whom grievances can be put.
  • The partner responsible for the work should be ready to listen to, and address, concerns when they are first voiced by one of the interested parties.
Managing conflicts within your firm

Increasingly frequently, complaints are received from firms about individual partners in the same firm. Of course there is the duty to report misconduct, and this is a bye-law requirement. However, it often appears to be the case that such a duty only arises when a partner leaves the firm!

The Institute's Investigation Committee will usually become aware if a partnership dispute is the real motive behind a complaint. Second, if a particular partner's conduct in a reserved area is the subject of a complaint, the committee will want to consider the firm's own position. It is possible, therefore, for a complaint to rebound on the complainant.

None of the above is intended to remove or trivialise the importance of the duty to report misconduct. Nevertheless, before making a complaint about a partner or former partner in your firm, consider carefully whether the matter can be sorted out face-to-face by discussing the problems with the person(s) concerned. This will conserve both your own resources and those of the Professional Standards Office, and avoid the stress of using a disciplinary forum to resolve differences.

In any event, check whether your partnership agreement is sufficiently robust in its provisions for settlement of conflicts that may arise between the parties to it. Legal advice may need to be taken and acted on.

Change of address, and its consequences

Membership regulations provide that a member must notify a change of address to the members' registrar within 28 days of the change. Because this is a regulation, failure to comply will itself lay a member or firm open to a disciplinary complaint.

One particular result of not telling the Institute about changes of address has recently come to light. The Institute's Professional Indemnity Insurance Regulations provide that members who hold a practising certificate, and practising firms, must have PII cover. The regulations also call for evidence of compliance to be provided annually. It appeared that a number of firms had not provided this evidence, laying them open to complaints leading, possibly, to disciplinary action. However, the results of investigating a number of these cases showed that the real problem was not lack of cover, but that the firms had moved without telling the Institute. Thus, they were neither receiving nor replying to Institute correspondence.

There is no need to be caught out on this one. If you change address, tell your clients, tell your business contacts, and tell the Institute!

Miscellaneous

The following sources of complaint are listed without comment because they are either self-evident or, in the case of s 48(1), Pensions Act 1995, guidance has been given in Audit News and True & Fair.

Not having professional indemnity insurance (required for all members with a practising certificate, and all member firms).

Breaches of s 48(1), Pensions Act 1995 - an auditor's failure to report to the Occupational Pensions Regulatory Authority immediately when a pension scheme's trustees have not obtained accounts within seven months of the year-end.

Breaches of regulations made under s 47, Pensions Act 1995 - failure to ensure that the letter of appointment and letter of acceptance of appointment as auditor of a pension scheme comply with the Occupational Pension Scheme Regulations 1996.

Acting for a client before sending a professional enquiry letter to an existing practitioner.

Failing to respond to a professional enquiry letter promptly or at all.

Inappropriate exercise of a lien. Acting in relation to reports to the Law Society without sufficient familiarity with the Solicitors Accounts Rules and the Accountants Report Rules.

Affiliates acting as 'responsible individual' (RI) on audits when not registered as an RI with the Institute.

Audit affiliates, or investment business affiliates, not applying for general affiliate status if the firm's registration ceases for audit or investment business. (The point here is that the firm will not be able to call itself 'chartered accountants' if it has partners who are not members or general affiliates.)

Conclusion

Be aware of what areas of expertise you/your firm have, and their limitations.

Use the Institute's member services for help and guidance (eg, ethics enquiries 01908 248258, technical enquiries 020 7920 8025).

Keep the members' registrar informed of any change of address or contact details.

Remember the duty under the bye-laws to report misconduct.

Try to avoid making a complaint if the subject matter does not fall under the duty to report misconduct, and is really the outcome of a partnership dispute.


A case study

A plc made an offer to purchase for cash the entire issued share capital of B plc. The transaction was subject to scrutiny by the Takeover Panel. The City Code requires that a confirmation of availability of the necessary cash be given by a suitably qualified person. A plc approached D & Co, which had not previously acted for either company, and asked Mr D to provide the necessary confirmation. D & Co was also appointed auditor of A plc. Mr D discussed the arrangements with A's financial adviser, obtained copies of both companies' balance sheets, and a letter from a connected party giving an undertaking to make funds available. On the basis of this, he issued a report for inclusion in the offer document. In the report, Mr D confirmed his familiarity with his responsibilities under the City Code. For various reasons, the Panel was not satisfied that sufficient funds were in place. Matters were not resolved to the Panel's satisfaction, and the offer lapsed. The Takeover Panel issued a statement that criticised various people acting for A, including Mr D. It stated that he had failed to exercise due care before issuing his report, and the foundation of his confirmation was therefore inadequate. In particular, no enquiries were made about how certain conditions would be fulfilled. The Institute's investigation showed that Mr D was not familiar with the type of work required in this case. Given that he was a sole practitioner with limited resources, it is also unclear how he would have been able to fulfil the responsibilities of auditor to a plc, particularly in the event that A plc was successful in its intended purchase of B plc. As a result of all the consequences of the intended deal's failure, A plc turned out to have insufficient resources to pay Mr D any fees!

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