The current upheaval caused by the pandemic could easily let the focus on compliance slip. But, whatever the circumstances, don’t ignore common pitfalls. Words by Caroline Biebuyck.
Compliance is still as important as ever and we expect the highest professional standards at all times. The pressure of dealing with day-to-day business in new circumstances can mean compliance with ICAEW rules drops off the agenda. And yet having a practising certificate and valid professional indemnity insurance (PII), doing the required continuous professional development (CPD) and keeping records of it are all a vital part of a practising member’s obligations.
Every member working in practice is personally responsible for their own situation, says Nigel Howell, Head of Investigation, ICAEW. “Sometimes members think that a practising certificate applies to the firm rather than the individual. But it doesn’t: anyone who is a principal in the firm needs one. It’s their own responsibility to make sure they have one.”
Problems arise when members think they can carry out certain types of work without a practising certificate or professional indemnity insurance, assuming that this is not necessary if they are only carrying out basic bookkeeping or another non-regulated service.
This is not the case, says Emma Thornton, Firms Supervisor, ICAEW. “The fact they are ICAEW members means they need a practising certificate and PII to carry out any accountancy service. The list of accountancy services is much broader than many people realise.”
Janet Hartas, Senior Manager in Professional Standards, ICAEW, has seen problems with sole practitioners who go into practice with someone who is not an ICAEW member. “The biggest issue tends to be when they appoint a spouse to be a director or shareholder and they dilute the control of the firm. The practitioner feels they are still a sole practitioner but the change in structure can make the firm ineligible to be an ICAEW member firm or call the firm a chartered accountancy practice.”
Members who are also members of another professional body have been caught out too. Someone who is a member of the Chartered Institute of Taxation, as well as ICAEW, and who only does tax work still needs an ICAEW practising certificate and PII. Or someone who is a member of the Association of Chartered Certified Accountants and has a practising certificate from them also needs a practising certificate from ICAEW.
Another common problem, warns Hartas, is when firms set up another entity, such as a payroll company, to work alongside their main practice. “They forget this is an accounting service provider too and that it needs to be registered with us, have an anti-money-laundering supervisor and comply with all ICAEW rules,” says Hartas.
Larger firms generally assign a person or team to arrange the practising certificates for all their principals and the PII policy for their firm. Problems can arise when members leave to set up by themselves, often because they forget about compliance as they are not used to doing this for themselves.
Under ICAEW’s PII regulations, firms are obliged to take out insurance with participating insurers – companies that have agreed to provide a specified minimum level of protection for members and with agreed policies on matters such as exclusions and excess.
Having compliant professional indemnity cover means ensuring the policy must be with a participating insurer, says Sarah-Jane Owen, PII and Regulatory Manager, ICAEW. “Even if a policy is with a reputable insurer, if it is not with a participating insurer then the member is in breach of the PII regulations,” she says.
Owen has noticed some members leave arranging their PII cover to the last minute. “At the moment the PII market is hardening: cover is becoming more expensive and pre-contract negotiations are becoming more prolonged. Don’t leave it until the week before you need the policy – start talking to brokers early to sort out claims experience, proposal forms and so on.”
Meanwhile CPD can be an issue for members leaving an established practice and setting up by themselves. The problem is not doing the CPD but keeping adequate records of what’s been done, says Thornton. “The record keeping is often handled centrally in larger firms. When members come to set up on their own, they are usually doing the learning they need to fill gaps in their knowledge for their work but they are not so good at documenting what they’ve done.”
The CPD area of ICAEW’s website includes a record-keeping function in which members can upload and maintain their records.
ICAEW wants to help members stop and think about their compliance responsibilities so they do not get into problems in the first place. “If you’re not sure whether your services fall within the definition of a practice, or if you have any compliance issue, ring ICAEW’s Advisory Services,’ says Thornton. ‘I’d rather the phones were ringing off the hook than have members inadvertently falling foul of the rules because they wrongly think they are doing the right thing.”