Rulebook 2004 Commentary
Nicole Ziman guides you through the latest changes to ACCAs Rulebook, which includes the continuation of the move towards a global Rulebook.
The changes to the bye-laws which were made at this years AGM are being incorporated. A definition of regulation has been inserted in order to clarify that breaches of the Rules of Professional Conduct have the same consequences as breaches of bye-laws and regulations.
A section dealing with exempt regulated activities has been inserted in order to reflect ACCAs responsibilities under the designated professional body regime of the UK Financial Services and Markets Act 2000.
There are also some changes to the AGM provisions. The date of the AGM each year has changed from the first Thursday after the first Monday in May to the third Thursday in May. Notices in writing of any motions not relating to the ordinary business of the AGM, supported by 19 other members, must now be received by noon on the first Friday in February prior to the date of the meeting.
The different categories of student (professional scheme, CAT, etc) have been separately defined in the regulations. The change enables ACCA to introduce different regulations for each category and ensure that all categories are subject to the bye-laws, regulations and Rules of Professional Conduct.
Global Practising Regulations
All members in practice as principals are required to hold ACCA practising certificates, regardless of geographical location. Currently, there is an opt-out available to practitioners who hold a local licence. As part of the move towards the concept of a single worldwide core practising certificate, the opt-out will be withdrawn as from 1 July 2004.
The practising certificate competences have also been updated, following extensive internal and external consultation, to reflect the broader role of modern practitioners. The competences have been relocated from the country-specific annexes to the main Global Practising Regulations.
Members without practising certificates often stray into carrying on public practice. In an effort to prevent this, the regulations have clarified the definition of public practice in order to remove any ambiguities and emphasise the restricted activities of which members and students most frequently fall foul.
For example, producing any kind of report on a clients financial affairs, which a third party is likely to rely on, is public practice. That includes activities such as preparation of a tax return for a client to sign and submit to the tax authorities and preparation of management accounts for a client to send to its bank.
Anyone carrying out such activities as principal, or giving the impression that he or she is a principal, requires a practising certificate. The requirements for undertaking honorary work, which does not constitute public practice, have also been clarified.
Fundamental Principle 5 states that members should carry out their professional work with due skill, care, diligence and expedition and with proper regard for the technical and professional standards expected of them as members. When preparing an accountants report, members are therefore obliged to follow the requirements of any regulatory body of which the client is a member. An explicit reference to that has been inserted into the annexes to the Global Practising Regulations.
Where a firm conducting audit work is managed by two persons, one of those persons must be audit qualified. In order to ensure that that person has control of the firm, the regulations now include a provision that he or she must have the casting vote.
Designated professional body regulations
The Financial Services Authoritys guidance on accounting to clients for pecuniary rewards or other advantages has been incorporated, which allows members to retain such rewards (eg. commission) as long as the client has given informed written consent. The rules apply to renewal as well as initial commission. It is not sufficient to include a general provision in the letter of engagement.
Irish Investment Business Regulations
Members carrying on investment business who are based in the Republic of Ireland, or based elsewhere but advising clients in the Republic of Ireland, need to be aware of the many changes that have been made to the regulations as a result of recent legislation and the requirements of the Irish Financial Services Regulatory Authority (IFSRA). The changes are too numerous to outline here, but a summary of the main changes is given.
To be eligible for an ACCA Irish investment business certificate, a member must be carrying out Irish investment business in an incidental manner. The incidental manner test requires that a members main activity be public practice, as defined in the Global Practising Regulations, other than investment business.
Members who are ineligible for a certificate, for instance if the incidental manner test is not satisfied, must obtain authorisation direct from IFSRA.
The most important change to the regulations is that pensions and insurance business now comes under the umbrella of investment business, which means that all the procedures set out in the regulations for advising clients and providing them with documentation must be followed when doing such business. It is important to note that insurance includes non-life insurance, such as motor and household insurance, as well as life insurance.
Other additions include a requirement to issue a receipt for any instrument received from a client in the course of carrying out investment business, such as cheques made out to product producers. Breach of the requirement is a criminal offence, as are breaches of several other regulations, such as the requirement to keep certain records.
The rules surrounding the documentation to be given to clients have become very much more detailed and include special provisions for execution-only clients, Personal Retirement Savings Accounts (PRSAs), collective investment schemes and life assurance and pensions.
For example, when advising on PRSAs, a client-specific factfind must be completed for each client, the client must be given a copy of IFSRAs leaflet on PRSAs and a written statement demonstrating why the PRSA is in the clients best interests, and the member and client must sign a prescribed form of declaration if a non-standard PRSA is recommended.
There are also detailed requirements for the provision of reasons why letters, assessment of risk and suitability and dealing in the clients best advantage.
There are several changes to the Disciplinary Regulations, some of which were a result of the recommendations of the Review Board (now the Professional Oversight Board for Accountancy).
There is a new procedure whereby ACCA may refer a case to a health hearing of the Disciplinary Committee. It is designed to be used only on those rare occasions when a member claims he or she is too ill to go through the disciplinary process, in order that the process is not indefinitely stalled.
There is also a provision for ACCA to request the Disciplinary Committee to hold a hearing at short notice, to be used only in exceptional circumstances such as where ACCA may need to act quickly to protect the public interest.
In addition to the orders which the Disciplinary Committee may make when giving a final decision on a case, the regulations now set out the orders which it may make when adjourning a hearing, such as provision of documents by a certain date. The making of such orders was already within the Disciplinary Committees implicit powers, as the Committee Regulations entitle it to do whatever it deems to be necessary or desirable, but it was felt it would be helpful to set them out explicitly.
In line with a recommendation of the Review Board, complainants now have the right to request a review of an investigating officers decision not to refer a case to an assessor, or an assessors decision not to refer a case to the Disciplinary Committee.
Under the new regulatory framework, the Accountancy Investigation and Discipline Board (AIDB) requires ACCA to refer to it any cases which raise serious public interest issues. The AIDB also has the power to intervene and take over the investigation of a case and to require ACCA to provide it with documents. Accordingly, the regulations have been amended to reflect this.
In order to reflect ACCAs current practice of ensuring that at least one, and preferably two, practising accountants sit on its disciplinary and regulatory committees, the quorum requirements have been updated. As before, it remains a requirement to have a majority of lay members on the committees.
As with the Disciplinary Regulations, provisions for health hearings and short notice hearings have been inserted. The different types of order which the Appeal Committee can make have been clarified, depending on whether the appeal is against both the findings and orders of the Disciplinary Committee or the orders only.
Rules of Professional Conduct
The Rules of Professional Conduct comprise two sections: Code of Ethics and Professional Conduct Regulations. The development of a global Code of Ethics has been delayed as the new codes to be issued by IFAC and APB are still awaited.
For clarification, notes have been inserted into various sections of the Rules of Professional Conduct to remind members in business that their clients for the purpose of the rules are their employers.
Integrity, objectivity and independence
There have been amendments to the rules on safeguarding independence. A key audit partner should not accept a key management position with a client unless at least two years have elapsed since the conclusion of the audit.
In relation to audits of listed and public interest companies, key audit personnel should be rotated. The engagement partner should be replaced within five years and should not return until a further five years have elapsed, while key audit partners should be replaced within seven years and not return until two years have elapsed (or five years if returning as engagement partner).
There is flexibility for alternative safeguards to be put in place where replacement of personnel is not practicable, for example due to the size of the firm.
Professional duty of confidence in relation to defaults and unlawful acts
of clients and others
The paragraphs on tax offences have been amended as part of a general review of the section and to incorporate references to money laundering. As part of the move towards the globalisation of the Rules of Professional Conduct, references to UK institutions such as the Inland Revenue have been replaced by general references to the tax authorities.
The ethical responsibilities of members in business
Information has been included about the Public Interest Disclosure Act, which offers protection to employees who feel forced to report issues of malpractice, and independent organisations which can assist employees troubled by ethical dilemmas at work. There is also a link to guidance for non-executive directors.
Money laundering regulations
These regulations incorporate the anticipated legislation, which imposes a far wider range of obligations upon members than previously. Members are required to implement internal procedures for enhanced record keeping, client identification, reporting of suspected money laundering activities and training staff.
Failure to implement the procedures or report suspicions through the appropriate channels will amount to a criminal offence, as will tipping off a client about a possible investigation.
References to money laundering issues have also been inserted into other parts of the Rules of Professional Conduct, in order to alert members to their relevance in different situations.
Descriptions of members and firms and the names of practising firms
There are now two alternative forms of statement which insolvency practitioners must use on their stationery. They are: Licensed to act as an insolvency practitioner by the Association of Chartered Certified Accountants or Insolvency Practitioner licensed by the Association of Chartered Certified Accountants. It is mandatory to use one or other of the statements.
Changes in professional appointments
The section on transfer information has been amended to emphasise that reasonable transfer information must be provided free of charge. The rule remains that such information must be provided even where there are unpaid fees.
Retention of books, files, working papers and other documents
A new paragraph has been inserted to emphasise the obligations imposed upon members by the Data Protection Act. There are eight data protection principles, which include a provision that personal data processed for any purpose (e.g. data about clients) must not be kept for longer than is necessary for that purpose. A link to further guidance is provided.
Professional liability of accountants and auditors
There are some important changes to this section. As required by the Review Board, it is now compulsory to provide a letter of engagement to all clients, regardless of the type of work undertaken, setting out in detail the services to be performed and the terms of engagement. Members should ensure that engagement letters are provided to existing clients as well as new clients.
Two court decisions have been highlighted which impact on the liability of accountants and auditors. The Bannerman case reinforces the Caparo principle that an auditor can have a duty of care towards a third party even where he has no actual knowledge that the third party intends to rely on his advice.
The Sayers case, relating to the duty of care towards clients, demonstrates that members can never absolve themselves of the obligation to give advice which should be within the general competence of an accountant.
Certain rules in this section have been amended for emphasis, as a result of issues raised at disciplinary hearings. The requirements which must be in place before monies can be withdrawn from a client bank account for payment of fees or commissions have been clarified. It has also been made clear that members must not withhold due payment out of monies to clients for the sole reason that a fee dispute exists.
The changes to the regulations and Rules of Professional Conduct come into force on 1 January 2004. All practising certificate holders will automatically receive a copy of the ACCA Rulebook 2004 in January. It can also be viewed on ACCAs website at www.accaglobal.com.
Members should contact ACCAs Technical Advisory Service on 020 7396 5920 or email@example.com if they require clarification of the effects of any rule.
Nicole Ziman Senior Legal Officer, ACCA