Sunday, 21 January 2018

A Review of the New CPA Bye Laws

Individuals will note that the Bye Laws which were adopted in May 2010 have undergone somewhat of a facelift and rewrite, and that much of the duplication which previously existed between Bye Laws and the Articles of Association has now been removed with the deletion of old Bye laws 1, 2 and 3.

A new Bye Law 2 has been introduced but this will have little or no impact on the everyday requirements of the membership, rather this will impact on some of the Council business and has the effect of ring fencing the nomination of appointment onto various Institute Committees and as Institute representative on to external joint committees as a function and remit of a new committee, the Nominating Committee.

The Nominating Committee is made up of the President, Vice Presidents and two Council members. Recommendations made by this Committee will be considered by Council, and may be adopted. The work conducted and the recommendations made by this committee should have the effect of streamlining council business.

Old Bye Law 4, Committees, has become Bye Law 3 in the most recent edition, and several of the sections within it have been reorganised, however there is little of substance which will have any consequence to members in general. Requirements in relation to the period of service on a committee, and of the quorum requirements have been removed, however it is likely that these functions will be established within the scope and committee procedures which will be established and laid down by the Nominating Committee for each committee.

In addition this Bye law has been updated to recognise the ability to hold meetings by conference all, by telephone, video or other electronic means.

The Bye Law in respect of Membership requirements (now BL 5) has been much reduced in length to reflect the streamlining and the reduction the duplication of information which was both Articles and in Bye Laws. This is also the case in respect of Bye Law 10 Regional Societies, Bye Law 11 Postal Voting, with Bye Law 12, Students, being amended to reflect the new syllabus details as well as training requirements and admission to membership. In addition to this there has been provision added for the creation of a Student Appeals Committee and for the creation and operation of an Academic Advisory Board.

The Bye Law changes noted below will have more of an effect on members, particularly those in practice than the changes highlighted above.

General Client Money Regulations

The introduction of a new Bye Law 4, Client Money is a significant addition, setting out specific requirements on how a firm must treat and account for this type of money going forward, as well as imposing specific administrative requirements.

A firm which holds general clients money will be required to introduce and implement procedures to ensure that client money is dealt with appropriately. These procedures include;

Ensuring that client money accounts are set up which are separate from the firms own account, and that these are interest bearing accounts under trust status. Banks are to provide acknowledgement of the trust status;
Records must be kept in a detailed enough fashion to show transactions into and out of these accounts;
Client instructions must be kept where payments are made to third parties which provide supporting reasons of why the payment was made;
Firms must be able to identify how much is held for each client and be able to reconcile to each account and each client;
Receipts will now be required to be issued to each client from whom a firm receives client money, the details are similar to S30 receipts issued under the Investment Intermediaries Act;
A written agreement must be in place with the client on the treatment of any interest before money is accepted from them. This information is to be kept for the period that money is kept or the account is open and for 6 years after the account has been closed;
On an annual basis and at the firms accounting year end a summary must be prepared which shows opening and closing balances, the total of payments in and out of each client money account and if there is more than one General Client Money account, a summary of the total of all reconciled balances on all client accounts, including the actual number of accounts and the number of clients on behalf of which money is held.
These records will be reviewed as part of the Quality Assurance Review Procedure.

Disciplinary Process

The existing Bye law in relation to Discipline has been substantially changed in both content and process.

The first change to be noted is that a complaint must be made in a prescribed format, and to facilitate this, the Institute has introduced a form which must be completed and submitted to the Secretary of the Institute. This form can be found on the website.

Additional powers for the Secretary

The Secretary is required to deal with any complaint in a specific manner and the detail of that procedure is outlined. The Bye Law has been amended and the result is to widen the power of the Secretary who now has additional powers;

to extend response time requirements;
offer a conciliation process prior to matters being referred to the Investigation Committee;
deem a case closed following successful conciliation; and
refer cases to mediation provided there is no issue which concerns consumer protection.
As an aside a failure to respond to a complaint within a specified time period will result in the matter being referred automatically to the Investigation Committee.

Therefore it is now vitally important that should a member or firm receive a request from the Secretary to respond to allegations of a complaint, this must be done adequately and promptly both initially and throughout the process as failure to do so is now deemed as a prima facia case of misconduct in itself with an automatic referral into the disciplinary process as a matter to be considered by the Investigation Committee.

This coupled with the Institutes duty to publish details of cases means that an issue can quickly become detrimental to either individual or firm.

Widening the Potential for taking Disciplinary Action

The incidences of what is deemed liable for taking potential disciplinary action against an Individual (being a member, a student or an affiliate) or a Firm have been widened to include;

poor quality or inadequate provision of financial services;
failure to respond to correspondence and other communications from the Secretary, or Committees which in itself will constitute a Prima Facia case of misconduct
failure to cooperate with the Quality Assurance process; and
as a caveat, a new statement which allows for any other action or failure which is not specifically mentioned.
Additional powers for the Investigation Committee
The Investigation Committee has also assumed some new powers in certain areas, namely;

the ability to summons a member to attend in front of it;
the ability to refer a case to mediation provided there is no matter which concerns consumer protection;
discretion to meet the complainant (previously it must meet the complainant where it was giving the member the opportunity of being heard)
the imposition of a Quality Assurance Review
the ability to impose a prescribed course of action.
New Emergency Powers to suspend

Importantly it has been given Emergency Powers which will allow the Investigation Committee in potential public interest cases, and before a case is heard to suspend;

a members membership;
a member practising certificate;
any authorisation, licence or permit;
affiliated partner status;
a firms registration or authorisation; or
a firms right to describe itself as 'Certified Public Accountant'.
Fines and Costs Imposed by the Investigation Committee

Fines and costs have been dramatically increased with the upper limit of a fine at the Investigation Committee level increasing tenfold from €3,000 to €30,000, and costs which were previously capped at €2,500 now being unlimited with the cap being removed.

Independent Reviewer

There have been a number of changes to the appointment of the Independent Reviewer, and how the Institute passes files to that Reviewer, as well as a reduction in the timescale for the referral of a matter for independent review, however these changes will not directly affect members.

Powers of the Special Investigator

The powers of the Special Investigator have also been widened to include that a failure to provide information will result in an automatic referral to the Disciplinary Committee.

Powers of the Disciplinary Committee

Have been further widened with the introduction of Intervention Orders which are powers that have been introduced which will allow the Disciplinary Committee in potential public interest cases, and before a case is heard to suspend;

a members membership;
a member practising certificate;
any authorisation, licence or permit;
affiliated partner status;
a firms registration or authorisation; or
a firms right to describe itself as 'Certified Public Accountant'.
Disciplinary Tribunal - composition and additional powers

The requirement of the composition of a Disciplinary Tribunal has been amended in this version of the Bye Laws to ensure that any Tribunal is made up of a majority of non members (lay representation).

Like the Investigation Committee the Disciplinary Tribunal has been given the powers to make an order which requires the individual or firm to undertake a specified course of action.

Resignation during Disciplinary Process

A widening of powers allows the Institute to make a publication that states a member, firm, affiliated partner or student has resigned during disciplinary process or prior to the commencement of any action, where a compliant has already been received.

Appeal Hearings

The Bye law has been amended to include, in detail the process which was previously implied. This is more or less, a replication of the process outlined in the Disciplinary Tribunal section.

Register of findings

The wording in this section has been amended to ensure that the Register reflects the decision of the Tribunal in relation to the publication of the name of the member or firm. Previously the firm or individual name appeared in the Register even if the decision of the Tribunal was publication without name.

Confidentiality

A new provision has been made in this Bye law which allows the Institute and its representatives to with hold client information or documents from a complainant if it is appropriate in the interest of client confidentiality.

The result of the amendments and additions is to strengthen the Institutes ability to levy disciplinary process and action against members, firms, affiliates and students.

Additional access for the Oversight Bodies

Clarification has been given to the status of the Financial Regulator and, in particular, to IAASA in relation to attendance at meetings and the ability to look at material in the possession of the Institute. Through an amendment in the Bye Laws it is clear that IASSA has been provided unrestricted access to any information it believes may be relevant to its own remit. This will undoubtedly include all papers, minutes, transcripts and any other documentation in respect of any disciplinary or regulatory issues which involve a firm or individual, as well as any documentation which would have an impact on the policy of the Institute when dealing with IASSA or have relevance to firms or individuals for whom IASSA are the oversight body.

Changes to the Quality Assurance and Review Visit System

Whilst there has not been any substantive change to the existing process in relation to either selection for a review visit, the conduct of a review or of the grading system, the process which is undertaken has been outlined in much more detail. The most important issue is that the QA process has been rolled out to encompass all practising firms, even those who are not Audit Registered or do not hold an Investment Business authorisation.

In addition whilst the content of the previous guidance document has not been amended, the status of it has changed considerably and what was once guidance alone has now gained strength and become a regulatory Bye Law.

Specifically the Bye law also now outlines the process of the requirement to appoint a compliance principal and to inform the Institute of this in writing, again not something which is new to IB authorised or Audit Registered firms, but something which a firm without either would not necessarily have in place.

Further the Bye Law now clearly spells out that a failure to co-operate with the Quality Assurance process will result in disciplinary action being taken.

Visit Cycle

Visits will be carried out in the following cycles

Firms with statutory audits of public interest entities - at least every 3 years;
Firms with statutory audits but not public interest - at least every 6 years;
Non audit firms - at least every 10 years.
Scope of Quality Assurance

The scope of the process is clearly outlined with the areas which will be examined being set out.

For audit firms these are;

compliance with applicable accounting, auditing and ethical standards and of independence requirements;
the quantity and quality of the resources the firm spends on compliance;
the audit fees charged; and
internal quality control systems in the firm.
For non audit firms these are;

compliance with applicable accounting standards and ethical requirements; and
internal quality control systems in the firm.
In essence this widening of scope will allow the reviewers to look at pretty much anything they want to within a firm.

Powers of the Director of Professional Standards

The Bye Law provides in detail the powers that the Director has in relation to the Quality Assurance process and these are;

directing a firm to carry out action deemed appropriate;
asking for information or documents;
ordering an accelerated re-review; and
referring a case to the Investigation Committee.
Continuing Professional Education

Again this Bye Law has been amended and extended to include provision for three new compliance committees to monitor compliance with the Institute's CPE requirements.

The first new committee, the CPE Committee, has the functions of:

monitoring compliance with the CPE requirements and referring compliance failures to the CPE Compliance Committee;
advising on CPE policy;
reviewing the CPE programme; and
advising Council on developments and recommending changes to the current regime.
The second new committee, the CPE Compliance Committee, has the function of investigating any complaints or failures that are referred to it by the CPE Committee.

The procedures which have been adopted are similar to those utilised by the disciplinary process under the remit of the Investigation Committee, in that a case will be heard and the member may make representation and call witnesses.

Powers of the new CPE Compliance Committee

The powers of this Committee are quite extensive and it can;

refer a matter to the Investigation Committee where failures require disciplinary action
reprimand a member
fine a member up to €2,500
impose costs of up to €3,000
direct a particular course of action in a prescribed time frame.
Members have the right to appeal any of the decisions made by the CPE Compliance Committee and these appeals would be made to the CPE Compliance Appeals Committee which has the powers to uphold, reject, set aside or vary any decision.

Failure to comply with the orders of any of these committees will result in a complaint being made to the Investigation Committee under the disciplinary process.

Professional Indemnity Insurance

Whilst the requirements in relation to holding of or the quantum of pii have not changed the definition of gross fee income has been extended to include income received in respect of work sub-contracted to others.

Practice and Audit Regulations

Both individuals and firms need to make themselves familiar with the new format of this Byelaw, as it has been substantially reformatted and renumbered to reflect the formats in the other Bye Laws.

However the major change comes in the area of the powers remaining with the Registration Committee which have been greatly reduced. The Committee is no longer able to:

impose conditions or restrictions on a Practising Certificate, except on grant or renewal;
suspend or withdraw a Practising Certificate except where there has been a failure to pay a fine or costs imposed by another committee or tribunal, or where the individual fails to meet the pii requirements. Where such a withdrawal takes place the decision is not open to appeal by the member.
Similarly in respect of Audit Registration the Committee is no longer able to impose a condition or restriction on a firm except where:

it no longer meets the eligibility requirements
it has failed to submit returns or reports;
restrictions or conditions are justified because the firm has failed to comply with Bye Law 13; and
not to do so could prejudice the public interest or
upon grant or renewal.
Likewise it can only suspend or withdraw Audit Registration there has been a failure to pay a fine or costs imposed by another committee or tribunal, or where the firm fails to meet the pii requirements. Where such a withdrawal takes place the decision is not open to appeal by the firm.

The reality of this change is that issues which would previously have been dealt with in a private regulatory environment between the Regulatory Committee and the firm now have the potential to become a disciplinary event under the disciplinary process which is subject to the transparency of the public domain, can result in higher fines, unlimited costs and a more robust publication strategy.

Further the Committee has also lost the power to levy Regulatory Penalties as a remedy for historic regulatory breaches, instead situations which would previously have warranted such a penalty will become a matter which requires a disciplinary process. This in essence means that the potential fines which can be levied for such breaches have been increased up to a maximum of €30,000 and carry unlimited costs.

No comments:

Post a Comment