Comments from ACCA
14 January 2012
Definition of Misconduct
We understand the FRC’s aim to be that the new definition could encompass matters which are unrelated to a Member’s professional work but which would render him or her unsuitable to be the auditor of a public interest entity. We do not believe it is appropriate for the definition to be widened as far as that. Such matters ought to be left to the Participants to take appropriate disciplinary action.
Having reconsidered our original submission in response to the consultation, and bearing in mind the key aim of the Scheme, we take the view that it is not appropriate for any matter to come within the FRC’s remit unless it has brought or is likely to bring discredit to the accountancy profession. Any other matters would be an unnecessary use of the FRC’s and the Participants’ resources and ought to be left to the relevant Participant body to deal with. We would therefore suggest removing the reference to matters which have brought discredit to the Member or Member Firm and, in line with our original submission, make the bringing of discredit a necessary element of Misconduct:
Misconduct means an act or omission, or series of acts or omissions, by a Member or Member Firm in the course of his or its professional, business or financial activities (including as a partner, member, director, consultant, agent, or employee in or of any organisation or as an individual), which falls significantly short of the standards reasonably to be expected of a Member or Member Firm and has brought, or is likely to bring, discredit to the accountancy profession.
In any event, we believe the definition may not work to achieve the FRC’s intention. We note that it limits misconduct to matters arising from ‘professional, business or financial activities’. While this might encompass matters relating to a Member’s private financial activities, it risks arguments being raised as to what constitutes a ‘financial activity’ (for example, a Member found to have lied to the Court about his assets in the course of divorce proceedings) and thus uncertainty. It also means that a Member who was found to have acted dishonestly in personal non-financial matters would not be subject to the FRC’s disciplinary scheme even thought it might render him unsuitable to be the auditor of a public interest entity (for example, a Member found to have lied to the Court about something other than financial matters). We suggest that if the FRC insists on widening the definition (which we do not believe would be appropriate for the reasons stated in a. and b. above), it would avoid costly arguments as to whether an activity falls within the definition if it were simplified to ‘professional activities or otherwise’.
Remit of the Case Management Committee
We consider the use of the word ‘merits’ in paragraph 4(3)(i) implies an element of second-guessing the Executive Counsel’s judgement. We assume that is not the intention and that it is oversight of the process that is intended, in which case we suggest that the whole of the phrase ‘and the merits of the approach taken by Executive Counsel’ should be deleted.
We take the view that it is necessary to make it clear in paragraph 4(3)(i) what form the monitoring will take place, to ensure there is a consistent approach taken to every case.
Paragraph 4(3)(ii) describes what is effectively a review of Executive Counsel’s decision to proceed with a Formal Complaint, but the words ‘to the extent thought necessary’ implies that it will not be done in every case. In our view, all decisions of the Executive Counsel to proceed with a Formal Complaint or not to proceed with a Formal Complaint should be subject to the same process and that that process should consist of a formal review of the decision by the Case Management Committee. It should therefore be set out separately in section 7.
Successor Member Firm
We would suggest amending the definition as follows:
Successor Member Firm means any Firm that acquires, directly or indirectly, control of all or part of a Member Firm or Former Member Firm or the practice of a Member Firm or Former Member Firm.