The Admissions and Licensing Committee (ALC) allowed audit registration to continue for our client (JA) despite previous unsatisfactory visits due to exceptional circumstances. We look at the case here and how the tribunal came to the decision.
There was a monitoring visit in February 2020 to the practice of JA. There had been five previous visits. At the first and second in 2001 and 2005, serious deficiencies had been found in JA’s audit work. In December 2005 at a hearing before the ALC, it had been ordered that JA should ensure that four future audits should be subject to hot review by an independent training company.
At the third visit in 2007, it was found that procedures had improved significantly. The hot review requirement was withdrawn.
There were further visits in 2011 and 2014. Although some weaknesses were found, overall, audit work was deemed to be satisfactory.
The sixth visit took place in February 2020. In two charity audits, serious deficiencies were found. Overall, the visit was considered to be unsatisfactory and in view of JA’s previous record, the ACCA made an application to the ALC for the firm’s audit registration to be withdrawn, together with JA’s RI status. The application was opposed.
The barrister representing the ACCA submitted that there had been deficiencies in the planning, control and recording of audit work and in two of the three cases examined, the audit opinions were not adequately supported by the work performed and recorded.
JA had engaged an expert who had carried out two cold file reviews on cases concluded, following the monitoring visit and which had been placed before the tribunal. The ACCA’s barrister, although conceding that these reports indicated a good standard of auditing, submitted that these did not undermine the findings of the compliance officer at the February 2020 visit when serious deficiencies had been found.
We represented JA before the ALC. We advised the tribunal that the firm now has nine statutory audits, all charities and that these clients had instructed the firm since 2015. Were the ALC to remove the audit certificates, JA’s turnover would be reduced immediately by 38%.
The tribunal was invited to discount the historic visits and subsequent order made by the ALC in 2005. We also pointed out that one of the three files examined at the latest monitoring visit had been found to be satisfactory. The three monitoring visits prior to February 2020 had been satisfactory. There were exceptional reasons why it would be unreasonable for the audit certificates to be withdrawn. The two cold file reviews had been carried out by a leading training company, both of which had been graded with a B. Furthermore, the weaknesses identified in February 2020 had been addressed.
A new software programme had been acquired. There was evidence that the work carried out under this programme was satisfactory. The work found to be unsatisfactory at the February 2020 visit arose out of a previous software programme, now withdrawn. The issue was one of recording which could be addressed by the imposition of conditions on the audit certificates.
JA was called to give evidence before the tribunal.
The Committee was satisfied that JA had committed a material breach of Global Practising Regulation 13, in that audit work examined revealed numerous breaches of ISAs and Ethical Standards.
The Committee rejected our submission that the poor standards dating back more than ten years should not be taken into account. It wished to take into account the complete auditing history. The Committee noted that between 2005 and 2020, the firm had fluctuated between a satisfactory and an unsatisfactory standard of auditing.
The Committee concluded that there were exceptional reasons for not following the guideline, namely withdrawing audit registration. Firstly, there had been a lengthy period of time between 2007 and 2014, when the firm had maintained a satisfactory standard of auditing over three visits.
Secondly, the new software package, although introduced prior to the monitoring visit, had not been used for the audits which had been found to be deficient. There was evidence that there had been improvements since the visit.
The Committee concluded that withdrawing the certificates was neither appropriate nor proportionate.
The Committee ordered that there should be an accelerated monitoring visit before the year-end at a cost to be borne by the firm. Secondly, the firm must not accept any new appointments until the accelerated monitoring visit had reported a satisfactory outcome. Thirdly, within 28 days, JA must produce an action plan which addresses the deficiencies found at the monitoring visit.
Finally, the Committee said that a failure to make the necessary improvements would jeopardise the continuation of audit registration.
We invited the tribunal to withhold publicity of name. However, the Committee rejected the submission and agreed that there should be publicity of JA’s name and that of his firm. The order was to come into immediate effect.
This was a notable outcome, bearing in mind that there had been unsatisfactory visits prior to March 2020. When these applications appear before the ALC, the outcome is, generally speaking, one where the audit registration of both the practitioner and the firm is withdrawn. The tribunal will only allow audit registration to continue in exceptional circumstances. This was one of those rare occasions when we managed to persuade the tribunal that there were exceptional circumstances in that audit registration should continue, with conditions.
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