Technical
2 May 2019 12:09pm

Practice Q&A: risk assessment and free consultations

Assessing risk with known clients, the ethics of independence and clarity in offering initial free consultation are the subjects you’re seeking answers on this month. Our experts are here to help

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Caption: Illustration By Yukai Du

Q: I run a small practice with clients that I know. Do I need to do a firm-wide risk assessment?

A: The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR17) require firms to take appropriate steps to identify and assess the risk that they could be used for money laundering, including terrorist financing. This requirement applies to all firms providing accountancy, trust or company services, regardless of size.

You need to assess the services you provide and types of client you have, to understand how criminals could use you to conceal the proceeds of a crime, or use your services to create an arrangement that could facilitate money laundering.

You can design your own firm-wide risk assessment and MLR17 acknowledges that you can take into account the size and nature of the business. The risk assessment for a small practice may be quite succinct. But most importantly, you must properly identify and assess the risk of money laundering or terrorist financing and you must document your assessment.

There are three key steps: Step 1 Identify the money-laundering risks faced by the different areas of your business, and the clients and markets you serve. Step 2 Assess each identified risk by considering the likelihood of it occurring and the resulting impact if it occurs. Step 3 Review the mitigating checks, systems and controls you have in place, or mitigating actions you could take, to bring the level of net risk to an acceptable level.

Once you have concluded what your existing or planned mitigating actions are, you should make sure your firm’s policies, controls and procedures are designed appropriately and properly implemented by your staff.

Sophie Falcon, integrity and law manager, Technical Strategy Department

Q: Can I do the independent examination of a charity if I provide it with other services?

A: When taking on the independent examination of a charity, firms must adhere to the requirements of the Charity Commission’s guidance; Independent examination of charity accounts: Directions and guidance for examiners (CC32).

In addition to these requirements, firms must either apply the independence requirements of the Financial Reporting Council’s Ethical Standard or section 290 of the ICAEW Code of Ethics: Independence – Audit and Review Engagements, both of which impose additional requirements over and above those outlined in CC32.

In essence an independent examiner should be as independent as if they were undertaking an audit of the organisation. Independent examiners need to be independent in both mind and appearance – third party perceptions are therefore paramount even where additional services are not specifically precluded by the more prescriptive requirements.

Partners, employees or indeed the firm itself must not generally serve as a trustee, director or company secretary of the charity involved and must not step into a management role as this would compromise independence. Simply filing accounts approved and signed on the instruction of the charity does not, however, generally create a threat to the independence of the examiner.

A firm may generally provide services of a purely mechanical and routine nature such as preparing the financial statements from the trial balance, as long as any self-review threat created is reduced to an acceptable level: perhaps, for example, by using separate teams. Further guidance on this is available to members from the ICAEW Ethics Advisory Service on +44 (0)1908 248 250.

Chris Turner, professional consultant, ICAEW Advisory Services

Q: Can I offer potential clients an initial free consultation?

A: The scope of the initial free consultation should be clear at the outset, the potential client should understand what is involved and, importantly, any limitations of the service. If the meeting will only be free subject to the practice subsequently being appointed as the potential client’s advisers, this should be made clear.

Any associated marketing materials should be legal, decent, honest, truthful and clear and not include unsubstantiated claims or comparisons about your firm’s services. If the firm gives advice then it must apply the ethical requirements on professional appointments (s210 of the ICAEW Code of Ethics). Additionally appropriate customer due diligence should be carried out.

If no engagement letter is issued at this stage, the potential client must be told in writing the basis on which any future fees will be calculated (s240 of the ICAEW Code of Ethics), the name of the principal to be contacted in the event of a complaint and of their right to complain to ICAEW (ICAEW Disciplinary Bye-law 11).

The additional disclosures required by the services directive should also be made. Further guidance is available to members from the ICAEW Ethics Advisory Service on +44 (0)1908 248 250 and in the helpsheet Initial free consultations.

David Stevens, professional consultant, ICAEW Advisory Services

Five in brief:

1) Charity details
Trustees of all registered charities in England and Wales will need to check and update the charity details on their online account and confirm they are correct before they can submit an annual return.

2) The latest SORPs
Are you using the latest SORPs? 2018 SORPs apply from 1 January 2019 for social housing and LLPs. Both have been revised to reflect changes to FRS 102 and to clarify other areas

3) GMP accounting
Updated guidance on the accounting of guaranteed minimum pensions is available from the Pensions Research Accountants Group following the judgement in the Lloyds Bank plc case regarding gender equality

4) Gender pay gap reporting

Gender pay gap reporting is due within a year of the “snapshot” date (5 April) for private sector organisations with 250 employees or more and 31 March for public sector organisations

5) Making Tax Digital
In April 2019, MTD for VAT-registered businesses came into effect. Keep up to date with the systems, software and schemes available to assist clients to comply on ICAEW’s website

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