20 Jul 2018 12:07pm

Practice Q&A: risk management and bad communication

Answers on risk management procedures, the repercussions of an interim role and poor communication, from those in the know

usa and Uk flags 630
Caption: Sanctions regimes are put in place by governments and international bodies

Q: My client operates in a number of countries. Risk management procedures found one of the countries is on a US sanction list. Should I be taking any action?

A: Sanctions regimes are put in place by governments and international bodies. For example the UK, EU, UN and US. They can target countries and individuals. Different sanctions lists can converge over time, for example some countries base their lists on that issued by the UN. The nature of sanctions regimes, and the interaction between sanctions lists, is extremely complex, and it is recommended that further advice is sought if you believe sanctions are relevant to planned activity.

US sanctions generally apply to US persons, though can extend to foreign affiliates of US entities, for example subsidiaries. The US can also sanction non-US entities that undertake certain transactions with certain countries. The latest US sanctions measures against Russian companies and individuals extends trade restrictions to non-US entities that knowingly facilitate significant transactions for them. This could include doing business in US dollars. Many available checking services (including the ICAEW client screening service) will check multiple sanctions lists. From a risk assessment perspective, simply because a particular country, entity or individual doesn’t appear on a list for a jurisdiction that does not directly apply to you, caution is advised when considering entering into a business relationship that may be affected by international sanctions. Further advice is recommended.

David Stevens, former integrity and law manager, Technical Strategy Department, ICAEW

Q: One of my clients has approached me to be an interim FD for 18mmonths. I am going to leave my employer and set up my own company. What are my responsibilities to ICAEW?

A: From a regulatory point of view the main consideration will be whether or not you will be considered to be in public practice and need to hold a Practising Certificate. The ICAEW Statement on Engaging in Public Practice deals with this issue and suggests that the working relationship with the former client is the key to making this decision. Is this a client/principal type of relationship or not, and is it your only role? As the FD to the client (unless the client themselves provides accountancy services of any kind) you are unlikely to find yourself in a position of being in public practice, even though you are contracting and invoicing through your own company rather than being on the payroll, but there are often grey areas. If you are unsure or want to talk through your situation, please call the Regulatory Information helpline on 01908 248250.

Other things to consider include the liability for anything that goes wrong – you should look into the need for insurance or ask for this to be included in the written contract. The membership regulations also require you to keep your ICAEW record and contact details up to date, so don’t forget to let us know what has changed. Finally the change in focus of your work will mean a change to your Continuing Professional Development – this may be the first time you have worked for yourself so you will need to make sure you are keeping your own records.

Emma Thornton, regulatory information supervisor, ICAEW

Q: A new client’s previous accountant is failing to respond to my letters. What do I have to do?

A: There may be a good reason for the delay and it’s a good idea to contact the previous accountant by other means to get an understanding of the situation. You can get the response over the telephone, although I always recommend that you follow this up with a written response if possible. If there appears to be no reason for the delay and you’ve had no response to any communications then you can send a recorded delivery letter stating that in the absence of a response by a specified (and reasonable) date you intend to accept the engagement. In these circumstances you can assume that the previous accountant’s silence means there are no matters to bring to your attention.

You still need to complete your own assessment of the potential threats to compliance with the fundamental ethical principles and undertake your risk assessment and client due diligence as usual. ICAEW guidance on the action required on a change of appointment is set out in section 210 of the Code of Ethics and in the helpsheet Change of appointment. The annex takes you step by step through the process. A series of FAQs on potential problems has also been posted on ICAEW’s website. Each case is different and if you would like advice on your own circumstances, contact the ethics advisory helpline on 01908 248250.

Nicky Swaisland, regulatory and ethics advice manager

Five in brief

1) Auditor liability to third parties
New ICAEW guidance clarifies where the “Bannerman paragraph” should be placed in audit reports. This is the clause under which auditors disclaim liability in respect of audit reports to third parties.

2) QCA corporate governance rules
The Quoted Companies Alliance has revised its corporate governance code for small and mid-sized quoted companies ahead of September’s implementation of the AIM rules changes.

3 ) AIM rule change
This rule change, which comes into operation on 28 September, will require all AIM companies to disclose on their websites which recognised corporate governance code they have chosen to follow and how they have complied with it.

4) Company directors’ addresses
Changes effective from 26 April make it easier for company directors and secretaries to remove their residential address from public inspection at Companies House. They cover those who registered their address prior to 1 October 2009.

5) Takeover rules strengthened
Changes to the UK mergers regime on 11 June reduce the threshold at which ministers can intervene in mergers and takeovers of companies in key areas of the economy that might risk national security.