Update 2016 Presented by John Selwood Highlights Preparing for a - - PowerPoint PPT Presentation

Practice Assurance and Money Laundering Update 2016

Presented by John Selwood

Highlights

Preparing for a visit Data Protection and Client Money AML refresher and new examples Accountant’s reports Feedback on FRS 102 implementation QAD Audit visits

Preparing for a practice assurance visit

• 8 year review cycle
• Desktop reviews
• Phone visits
• AML, Client Money,

Probate and Investment Business are stil a focus

• Quality of financial

statements will be an issue

Overview

• Prepare all the required

information

• Common problems:
• Letterhead
• Data protection contracts
• Subcontractor

agreemenst

• Staff appraisals
• Compliance reviews

Before the visit

• Opening meeting
• The review:
• a sample of client files;
• a sample of fee notes,

commission statements, office and client bank account records;

• your professional indemnity

insurance policy

• other matters which might have

arisen during the opening meeting

• Closing meeting

The visit

• icaew.com/cpd
• icaew.com/consumercredit
• icaew.com/dpbinvestmentbusiness
• icaew.com/faculties
• icaew.com/helpsheets
• icaew.com/moneylaundering
• icaew.com/pii
• icaew.com/practice
• icaew.com/practiceassurance
• icaew.com/probate
• icaew.com/regulations
• icaew.com/sigs
• icaew.com/support

Support information

• 2000 reviews in

2014

• Data protection
• Client money
• Anti-money

laundering

2015 QAD feedback

Data protection – the next big thing for Practice Assurance

• data storage – use of external media such

as USB drives and external hard drives;

• passwords and encryption of laptops and
• ther devices such as USB drives and

external hard drives;

• use of internet and social media (e.g.

when, sites excluded, purpose and monitoring);

• email use (e.g. when, recipients excluded,

purpose, content and monitoring);

• use of own devices (bring your own device

– BYOD) such as tablets (are they secure, password protected and able to be remotely wiped); and

• data loss.

QAD advice

• 1. Review

policies and procedures regularly

• make sure client data is

physically secure;

• make data transfers as secure

as possible (this can be done with encryption, passwords or client portals);

• don’t put more than one set of

data on a USB; and

• protect data with up-to-date

security, back it up and then test back-ups regularly.

2. Make sure data is secure

• Third parties and subcontractors
• If the firm uses the cloud for storing

client data or is considering it:

• make sure your clients understand

and agree to the arrangement;

• check the third party has

appropriate security in place to comply with the DPA; and

• check if the data is going to be

stored outside the EEA. If so you may need additional contractual confirmation that their security is adequate.

• 3. Use of

third parties and cloud computing

• Staff and

principals!

• Sole

practitioners – can alternates access data?

• 4. Make

sure your staff understand the firm’s policies and procedures

Client money

• Make sure you have done

money laundering checks for clients who you hold money for

• If you take fees from your clients’

money account, you must have consent or 30 days must have passed since you gave them an invoice

• If you hold more than £10,000

for one client for more than 30 days, you must open a separate designated account

Reminders from QAD

• n client

money

• In general, you will have to pass any

interest to your client

• The clients’ money account should not

incur bank charges

• Pay mixed monies into the client

account first

• You must reconcile the individual client

ledgers to the bank reconciliation at least every five weeks

• You must do an annual compliance

review

• You must know where your bank trust

letter is

Reminders from QAD

• n client

money

Anti-Money Laundering refresher and update

• Evidence of the existence of the

entity (company etc)

• A full list of the principals -

management

• On a risk basis, verify the

identity of a sample of principals

• A full list of any individuals who

are beneficial owners, being: those who own or control (directly or indirectly) more than 25% of the entity

Customer due diligence refresher

Risk based approach the service being provided the nature

• f the client

the jurisdictions

• f operation

High Medium Low

Multiple sources? Checked across a period? Regularly tested? Supplementary information

Electronic client identification

• Updating the risk assessment
• Checking to ensure that new
• wners/principals/etc have

been properly identified

• Updating evidence of address

etc

• Checking that all other

customer due diligence information is still current and up to date

On-going monitoring includes:

Suspicious activity reports

Knowledge

• r

suspicion In the course of business Relevant information Legal privilege Overseas?

Whilst preparing year end financial statements you notice that a whole quarter’s input VAT has been reclaimed twice. Is that reportable?

When finalising the self assessment ITR for 2015/16, the client let’s slip, in conversation, that they are having trouble evicting a tenant in one of their investment properties. There is no reported income in the tax

• returns. Is this reportable?

You ask the question about the investment properties alluded to above. After some perseverance on your part the client admits many years of undisclosed income on a number of properties. They refuse to declare the income in previous years and begrudgingly agree to declare income in future. What do you do?

You have a long standing owner managed corporate client where you also act as tax agent for the shareholder/directors. These individuals have been introducing very substantial sums into the company and you cannot see that their personal financial resources could support this. You challenge this and are told that they won the money on a horse. Is this reportable?

When preparing year end financial statements you notice several large commission payments to overseas

• agents. These agents do not

appear to do anything in particular

• ther than assisting with contract
• negotiations. You suspect that

these are bribes. Is this reportable?

Accountant’s reports

• TECH07/16AAF – Chartered

Accountants’ reports on the Compilation of Financial Information

• f Incorporated Entities; and
• TECH08/16AAF – Chartered

Accountants’ reports on the Compilation of historical Financial Information of Unincorporated Entities.

• ACCA has a similar factsheet
• ICAS has its Accounting Framework

ICAEW guidance

• Integrity
• Objectivity
• Professional

Competence

• Confidentiality
• Professional

Behaviour ICAEW Framework

• Could you own shares in

a client?

• Could you be a director of

the company?

• Could your business

partner be a director?

• Could your brother be a

director?

Questions

Compilation engagements (accounts preparation)

• A firm, its partners and any

covered person, and persons closely associated with them, shall not solicit or accept pecuniary and non- pecuniary gifts or favours, including hospitality, from an entity relevant to the engagement, or any other entity related to that entity, unless an objective, reasonable and informed third party would consider the value thereof as trivial or inconsequential.

FRC Ethical Standard for Auditors Gifts and hospitality Para 4.61D

• Up to date

templates

• Review
• Disclosure

checklists

• Training

Quality control

Engagement letters

Engagement letters

• Limitation of liabilitity?

No accountants report? The directors cannot sign them!

If the accounts are not True and Fair

• select suitable accounting policies

and then apply them consistently;

• make judgements and estimates

that are reasonable and prudent;

• state whether applicable UK

accounting standards have been followed, subject to any material departures disclosed and explain in the financial statements; and

• prepare financial statements on a

going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors

• f a

company are required to:

Feedback on FRS 102 Implementation

• The increase in audit

exemptions thresholds

• Independence, ethics and

quality control

• The impact of FRS 102
• Audit judgements,

understanding and testing complex revenue models, and substantive analytical review

• Future challenges

2015 QAD Report

Software? Accounting policy note Judgments and uncertainty

• Measured at fair value through profit or loss
• That are debt instruments measured at amortised

cost (including undiscounted items eg, trade receivables, accrued income but not prepayments)

• That are equity instruments measured at cost less

impairment

Financial assets

• Measured at fair value through profit or loss,

showing separately those that are not derivatives or held as part of a trading portfolio

• Measured at amortised cost (including undiscounted

items eg, trade payables and accruals)

• Loan commitments measured at cost less

impairment.

Financial Liabilities

FRS 102 – new notes – financial instruments

• In aggregate
• In addition to any directors

remuneration disclosure

KMP Compensation

• Not the SSAP 21 basis!
• TOTAL minimum lease
• bligations - banded

Operating leases

FRS 102 – changed notes

Transitional adjustments

Narrative disclosure needed Errors are not transitional items! HMRC has complained about lack of disclosures

Problems filing small company audited accounts

From everything I have read I understand that when audited, filleted financial statements are filed at Companies House that no audit report should be attached and instead certain disclosures about the audit appear on the balance sheet. However, I have recently seen several companies have their accounts rejected by Companies House because the company has neither claimed audit exemption or filed an audit report. I am somewhat at a loss how to respond, because I thought I had got it right. What have I missed?

QAD audit visits

• The increase in audit

exemptions thresholds

• Independence, ethics and

quality control

• The impact of FRS 102
• Audit judgements,

understanding and testing complex revenue models, and substantive analytical review

• Future challenges

2015 QAD Report

QAD visit outcomes

QAD visit outcomes

• 1. ISA 500 Audit evidence
• 2. ISA 230 Documentation
• 3. ISA 315 Risk assessment
• 4. ISA 530 Audit sampling
• 5. ISA 240 Fraud

2015 QAD Top five weaknesses

1. Quality of audit judgements Estimates, judgements and uncertainty are the most challenging aspects of any audit. Audit teams may be faced by challenging audit judgements in the valuation of goodwill, properties or other assets, or events that may result in liabilities, provisions or contingent liabilities. Faced by complex audit judgements, firms should ensure their challenge of management assumptions and consideration of other evidence that either supports or contradicts those judgements is clear.

• 2. Understanding and testing

revenue 
 The audit of revenue is a key area of focus inour audit file reviews due to the importance of revenue to most types of company, and charities in

• particular. Weaknesses in revenue

testing are some of the more common weaknesses in audit evidence that are identified on the reviews.

• 3. Tests for completeness of

transactions and balances Completeness of transactions – or designing tests to identify information that is not in the accounts – is usually more difficult. Work on creditors, accruals and provisions must consider not only the balances included in the accounts, but also the risk that further amounts have been overlooked, which might reduce profit and net assets..

IES 7 IES 8

International Education Standards

• Reflect
• Act
• Impact
• IES 8 will add

emphasis for QAD visits

IES 8 1 July 2016 ICAEW already comply: