Module 9 Flashcards
Audit must ensure they do what to fulfil their responsibilities?
Adequately plan
Obtain sufficient appropriate evidence
Report findings and opinion
Auditors rights
To receive information
- access
- explanations
Resolutions and meetings
- written resolution
- AGM
- heard
Matters to be reported by exception?
Returns received Accounts agree Proper records kept Information and explanations received Directors emoluments and disclosures complete
CA 2006 makes it an offence to
Knowingly or recklessly give a misleading false or deceptive statement
Auditor appointment
Passing of ordinary resolutions (50% + shareholder via vote) Directors allowed: - before 1st period - fill causal vacancy - previous exemption
Public vs private companies appointment?
Public - at each AGM
Private- automatically unless 5% shareholders object
Auditor remuneration fixed by
Whoever makes the appointment
Auditor removal during terms of office
Can be at any time, rights:
Copy of motion
Written statement
Attend AGM in year
Failure to reappoint- right to written representation
Auditor resignation
Letter of resignation
If PIE statement of circumstances, may request a general meeting
Statement of circumstances must either:
Asset no connected circumstances
Or disclose them
Statement must also be sent to
Appropriate audit authority
PIE = FRC
RSB otherwise
What is money laundering?
Involves possessing, concealing or dealing with the proceeds of any crime
Legal guidance of money laundering is in?
POCA 2002 proceeds of crime act
ML regs 2017
SOCPA 2005
Client may conduct money laundering by?
Knowingly or actively
Inadvertently
Principal offences of the proceeds of crime act 2002 POCA 2002
Concealing or transferring the proceeds
Arrangements to facilitate the acquisition, retention use of control
Acquiring, using or possessing criminal property
Common law cases
Kingston- auditor negligence
AWA - duty of care to clients
Caparo - fury of care to 3rd parties and shareholders
RBS- 3rd parties doc
What are the regulated sectors?
Auditors, external accountants and tax advisors Credit institutions Financial institutions Independent legal professionals Trust or company service professionals Estate agents High value dealers Casinos
Potential additional offences for those in the regulated sector under the POCA include?
Failure to report
Tipping off
POCA requires disclosures to be made internally to?
A nominated officer
Money laundering reporting officer in an audit firm
It is an offence under the POCA for an individual in a regulated sector to fail to report to the NCA, the MLRO or equivalent in a timely fashion where:
a) knew or has reasonable grounds to know or suspect that someone is engaged in money laundering
AND
b) either the individual can identify the person or whereabouts of property OR believes the info they provide will identify them
c) the information has come through the normal course of business
By making a disclosure, the individual has discharged their responsibility, the passes to the
MLRO who should investigate
An MLRO or equivalent commits and offence where they fail to report back to the NCA where
a) knew or has reasonable grounds to know or suspect that someone is engaged in money laundering
AND
b) either the individual can identify the person or whereabouts of property OR believes the info they provide will identify them
c) the information has come from individual reporting to them
The POCA contains no de minimis provisions, this means that
All suspicions that fall under the requirements must be reported
What is tipping off?
Offence to tip off someone who has been reported for a known or suspected money laundering
May prejudice any investigation that is conducted
Tipping off arises when an individual discloses information which was received in their ordinary course of business including:
That a report has already been made
An investigation is being contemplated or is being carried out to determine whether a report has to be made
Tipping off and failure to report sentences
Imprisonment, fine or both
Failure to report - up to 5 years prison
Tipping off - max 2 years
What do the ML Regulations require?
Everyone who carries on a relevant financial business in a regulated sector to establish and maintain specific policies and procedures to guard against their services being used for money laundering
What are the key areas that the ML regulations cover?
- Risk assessment and controls
- Customer due diligence
- Supervision and registration
Risk assessment and controls of the ML regs include
Risk assessment
Policies, controls and procedures- kept in writing
Internal controls- individual appointed for compliance
Training- to identify instances and understand how policies affect their work
What is customer due diligence in ML regs?
All firms must seek satisfactory evidence to identify and verify clients, includes: Directors (passport/driving license) Company itself (Companies house) Beneficial owners (25% or more of voting rights, or who can exercise control) (passport/dl)
What approach should be taken to due diligence?
Risk based approach, more evidence where high degree of risk
How long must records of client identification procedures be kept
5 years
Include any transaction made by a firm on behalf of client
MUST be deleted 5 years after completion of relationship
The auditor must be careful that in gathering evidence they don’t tip off any who are on suspicion. ISA (UK) 250 Section A highlights what circumstance where auditor must be cautious not to tip off a client?
Instances of non-compliance Communication with those charges with governance Resigning unexpectedly Issuing modified audit report Delaying the audit report
Accountants working outside the regulated sector obligations for money laundering?
Currently no obligation to make a money laundering report
Unless it relates to terrorism
Doesn’t preclude from criminal law - ethical
What is common law?
The systems of law based on decisions made by judges in court
Based on concept of judicial precedent - decision made by court is binding on other courts
What is the condor rot negligence?
Occurs in situations where a party suffers loss or damage as a consequence of another party’s carelessness
An auditor will be liable to pay compensation if?
Auditor owed a duty of care
Audit was negligently performed
Claimant suffered a quantifiable, reasonably foreseeable loss because of auditors negligence
What is the Re Kingston Cotton Mill Co (1896) case?
Exaggerated stock quantities and value to overstate profits
- auditor didn’t attend stock count
In 1896 there was no requirement under law to attend stock count so not negligent
ISA 501 now requires attendance if stock is a risky and or material balance
What is the definition of duty of care?
A legal obligation imposed on auditors requiring them to exercise a reasonable standard of care whilst performing any acts that could foreseeably harm others
The courts will only make an award of damages in relation to a negligence claim if
It can be proved that the auditor did owe a duty of care
There is potential for duty of care to exist in what three groups?
Audit clients
Shareholders
Third parties
What was the AWA limited v Daniels case (1992)
Duty of care to audit clients
AWA managers concealed losses
Sued auditor for failing to draw attention
Had a duty of care through the engagement letter
But the directors had a legal responsibility to safeguard assets
Found to be jointly liable
Auditor payed reduced damages
What was the caparo industries v dickman case (1990)?
Duty of care to 3rd parties:
Caparo relied on audited accounts of Fidelity in takeover, profit should have been a loss
Alleged auditors negligent
Was foreseeable but no close and direct relationship
Principle of proximity
Duty of care to shareholders:
Owed to body as a whole
No duty of care to shareholders acting as an individual
What are the three conditions that must be met to establish duty of care?
Loss would have to be reasonably foreseeable
Need to be close and direct relationship
Imposition would have too be fair, reasonable and just
What is the principle of proximity?
Restrict duty of care to third parties to those individuals with whom the auditor has a close and direct relationship
What was the RBS v Bannerman (2002) case?
Duty of care to third parties
RBS overdraft to APC
APC went into receivership, sued auditors for negligence
Auditor should have reviewed overdraft facility letter, RBS reliance on audit opinion
Did owe duty of care
Settlement
Case that shows duty of care to shareholders?
Caparo
Cases that show duty of care to third parties?
RBS
Caparo
Duty of care to audit client case?
AWA vs Daniels
Auditor negligence case?
Kingston cotton mill
What are the three measures to prevent negligence?
Formalising the basis of the engagement contract
Identifying the risk profile of potential clients
Ensuring a sound audit approach followed
- train and supervise
- documentation standards
- review
What is a liability limitation agreement?
Limits the amount of liability owed to a company by its auditor
The CA 2006 imposes a number of requirements on the use of LLA
Only for a particular financial year
Must be authorised by shareholders
Details disclosed in annual accounts
Can be challenged in court
Can face charges over knowingly or reckless if giving an incorrect opinion - penalty unlimited fine
