DISCIPLINARY COMMITTEE OF THE ASSOCIATION OF CHARTERED CERTIFIED ACCOUNTANTS

Transcription

1 DISCIPLINARY COMMITTEE OF THE ASSOCIATION OF CHARTERED CERTIFIED ACCOUNTANTS REASONS FOR DECISION In the matter of: Mr Vijaykumar K Patel Heard on: 28, 29 and 30 April; 13 July 2015 (Committee only) and 31 July 2015 Location: ACCA Head Offices, 29 Lincoln s Inn Fields, London WC2A 2EE Committee: Dr Vicki Harris (Chairman, Accountant), Mr John Walsh (Lay) and Dr Hazel Bentall (Lay) Legal Adviser: Mr Andrew Granville Stafford Persons present and capacity: Mr Vijaykumar Patel (Member) Mr Christopher Cope (Mr Patel s representative) Mr Stephen Hopper (ACCA Case Presenter) Ms Karen Ray (Investigations Officer) Miss Kathryn Reece and Ms Jill Baldwin [28th April], Ms Lucy Annetts [29th and 30th April] and Mr Richard Lorkin [31st July] (Committee Officers) Observers: None PRELIMINARY APPLICATIONS 1. The Disciplinary Committee of ACCA ( the Committee ) convened to consider three allegations against Mr Vijaykumar Patel. The Committee had before it a core bundle (pages 1 to 458), two additional bundles (pages 759 to 784 and 785 to 792), two further additional bundles that were submitted by agreement during the hearing (pages 793 to 823 and 824 to 830) and two bundles of service papers (pages 1 to 25 and 26 to 31). 1

2 2. Prior to the hearing the Committee had been sent a bundle of over 2,400 pages from which the core bundle had been drawn. At the outset of the hearing both parties confirmed that they would not refer during the hearing to any documents other than those in the core bundle; however they had no objection to the fact that members of the Committee had been provided with, and therefore may have seen, documents which were not in the core bundle. 3. The second additional bundle (pages 785 to 792) contained evidence submitted on behalf of Mr. Patel within the 21 day time limit for the filing of evidence set out in Regulation 9(4) of the Complaints and Disciplinary Regulations ( the Disciplinary Regulations ). Mr Hopper on behalf of ACCA did not object to this material being put before the Committee and, in the light of that, the Committee exercised its discretion to receive this evidence. 4. Mr Hopper applied to amend allegations 1(a) and 1(b) to include the words on 8th August 2011 after the name of Mr Patel s firm. The purpose of the proposed amendment was to make it clear on what date it is alleged that Mr Patel filed the relevant accounts at Companies House. Mr Cope, on behalf of Mr Patel, supported the application and the Committee was satisfied it was appropriate to make this amendment in the interests of clarity. ALLEGATIONS AND BRIEF BACKGROUND 5. The allegations against Mr Patel, as amended, are as follows: Allegation 1 (a) Pursuant to bye-law 8(a)(i), it is alleged that Mr Patel is guilty of misconduct by reason of breaching the fundamental principle of professional competence and due care (as applicable in 2011) in that his firm, Akshar & Company, on 8th August 2011 filed individual audited accounts of [Company A] (year ended 31 December 2010), which took advantage of exemptions available to small companies, despite the fact that the company did not qualify for those exemptions. or 2

3 (b) Pursuant to bye-law 8(a)(iii), it is alleged that Mr Patel is liable to disciplinary action by reason of breaching the fundamental principle of professional competence and due care (as applicable in 2011) in that his firm, Akshar & Company, on 8th August 2011 filed individual audited accounts of [Company A] (year ended 31 December 2010), which took advantage of exemptions available to small companies, despite the fact that the company did not qualify for those exemptions. Allegation 2 Pursuant to bye-law 8(a)(i), it is alleged that Mr Patel is guilty of misconduct by reason of informing ACCA s investigating officer that Akshar & Company had prepared audited group accounts of [Company A] (year ended 31 December 2010) by 14 April 2011, when in fact the group audited accounts were not prepared until after 23 August 2011, the date of a complaint to ACCA by [Mr C]; and his conduct in so informing ACCA s investigating officer was: (a) Dishonest. (b) Contrary to the fundamental principle of integrity. Allegation 3 (a) Pursuant to bye-law 8(a)(i), it is alleged that Mr Patel is guilty of misconduct by reason of breaching the fundamental principle of professional competence and due care (as applicable in 2011) in that his firm, Akshar & Company, issued an unqualified audit report in respect of the accounts of [Company B] for the year ended 31 December 2010, despite all or any of the following: (i) There was no explanation of the principal risks and uncertainties facing the company in the directors report, contrary to Section 417 of Companies Act (ii) There was no disclosure of security given by the company in respect of bank loans and overdrafts in the notes of the accounts, contrary to paragraph 61(4) of Statutory Instrument 2008 No

4 (iii) There were no related party disclosures in respect of a year-end balance of 1,630,993 owed by [Company C] in the notes of the accounts, contrary to paragraph 6 of Financial Reporting Standard 8. (iv) There was inadequate documentation in the firm s audit working paper files of audit work undertaken in relation to the recoverability of a debtor in the accounts of 1,630,993, contrary to paragraph 8 of International Standard on Auditing 230. (v) Debit balances were recorded within trade creditors to such an extent that the closing balance was materially misstated. (vi) The accounting policy in the accounts in respect of turnover did not comply with paragraphs 55(a) and/or (c) of Financial Reporting Standard 18. or (b) Pursuant to bye-law 8(a)(iii), it is alleged that Mr Patel is liable to disciplinary action by reason of breaching the fundamental principle of professional competence and due care (as applicable in 2011) in that his firm, Akshar & Company, issued an unqualified audit report in respect of the accounts of [Company B] for the year ended 31 December 2010, despite all or any of the following: (i) There was no explanation of the principal risks and uncertainties facing the company in the directors report, contrary to Section 417 of Companies Act (ii) There was no disclosure of security given by the company in respect of bank loans and overdrafts in the notes of the accounts, contrary to paragraph 61(4) of Statutory Instrument 2008 No 410. (iii) There were no related party disclosures in respect of a year-end balance of 1,630,993 owed by [Company C] in the notes of the accounts, contrary to paragraph 6 of Financial Reporting Standard 8. (iv) There was inadequate documentation in the firm s audit working paper files of audit work undertaken in relation to the recoverability of a debtor in the 4

5 accounts of 1,630,993, contrary to paragraph 8 of International Standard on Auditing 230. (v) Debit balances were recorded within trade creditors to such an extent that the closing balance was materially misstated. (vi) The accounting policy in the accounts in respect of turnover did not comply with paragraphs 55(a) and/or (c) of Financial Reporting Standard Mr Patel is a sole practitioner in the firm of Akshar & Company ( the Firm ). He was admitted as a member of ACCA in 1990 and as a fellow in The allegations relate to audit work that Mr Patel and his firm carried out for two related companies, Company A and Company B in Company A is the parent company of a group which comprises itself and Company B. Company B is a travel company which had, in the year ended 31 December 2010, a turnover in excess of 56m. Company A, which owns all the issued shares in Company B, had in the same year a nil turnover. 8. By letters of engagement dated 10 January 2011, Mr Patel s firm was appointed as accountant to the two companies. The firm prepared audited accounts for both companies for the year ended 31 December These accounts were approved by the companies respective boards on 14 April 2011 and signed by Mr Patel s firm as auditor on the same date. On 8 August 2011 these accounts were filed at Companies House. 9. The accounts filed for Company A on 8 August 2011 ( the individual accounts ) took advantage of exemptions available to small companies. However, by virtue of section 383 of the Companies Act 2006, Company A did not qualify as a small company because, inter alia, it was the parent of a group that had an aggregate turnover in excess of 7.8m gross. Accordingly the accounts filed should have been consolidated accounts for the group as a whole ( group accounts ) and should not have taken advantage of the small companies exemptions. 10. It is alleged by ACCA that, by filing individual accounts for Company A which took advantage of the small company exemptions, Mr Patel breached the fundamental principle of professional competence and due care. In consequence it is alleged that 5

6 Mr Patel is thereby guilty of misconduct (Allegation 1(a)); alternatively that the same amounts to a breach of regulations rendering Mr Patel liable to disciplinary action (Allegation 1(b)). 11. Mr Patel subsequently told an ACCA investigating officer, in a letter dated 4 October 2011, that the individual accounts for Company A had been prepared for management purposes only. He said they had been prepared at the same time as the group accounts; namely, on 14 April However, due to an error, he had sent the individual accounts rather than the group accounts to Companies House in August Prior to this, on 23 August 2011, a. complaint was made to ACCA. The complaint alleged, amongst other things, the error in Company A s filed accounts relating to the small company exemption. This complaint was relayed to Mr Patel on 30 August On 24 September 2011, approximately three weeks after he learnt of the complaint, Mr Patel filed the group accounts at Companies House. 13. It is alleged by ACCA that the group accounts were only prepared after he learnt of the complaint. Accordingly, ACCA s case is that Mr Patel acted dishonestly (Allegation 2(a)) and/or in breach of the fundamental principle of integrity (Allegation 2(b)) when he told ACCA that the group accounts had been prepared at the same time as the other accounts, namely by 14 April In support of the allegation that the group accounts were not prepared until Mr Patel learnt of the complaint ACCA relies on the following: If the group accounts had already been prepared, then why was there a three week delay between learning of the complaint and filing the proper accounts? If the individual accounts had been prepared as management accounts there would have been no need to include any reference to small companies exemptions; nor to have had the accounts signed. These accounts had all the hallmarks of having been prepared for submission to Companies House. There are discrepancies between the disclosures in the group accounts for Company A and the individual accounts for Company B. If both had been prepared at the same time it would be expected that the disclosures would be the same in both. The discrepancies imply that the Company A group 6

7 accounts were prepared with the benefit of hindsight in the light of the complaint that had been made. It is unlikely that an audit report would have been prepared for a set of accounts which were intended for management purposes only. Further, it is unlikely that an auditor would sign two audit reports on the same day for the same company. 15. Mr Patel gave the following explanation as to why the incorrect accounts had been filed in his letter of 28 February 2013: In order to ensure we had the correct information for including in the consolidation (especially as the consolidated accounts do not contain the profit and loss account of the holding company) we produced a full set of accounts for the company for discussion with the directors. In hindsight we should not have included an audit report in these accounts as they were purely for information, however we did. When the accounts were agreed copies of the individual and the group accounts were sent to the client for approval and the wrong set was filed in error...when the pack was returned from the client I signed all the audit reports, although in future I would not place one on the individual accounts. I would have prepared the packages for Companies House and do not know why I sent the wrong set, it was an innocent mistake but the systems I have in place should prevent this error happening in the future. 16. In a further letter to ACCA on 29 April 2014 he said: The individual accounts for the holding company are presented to the client for approval in the same way that we do for the group accounts for two reasons: 1. It is a useful way for the client to see the results of that company when they do not have more detailed management accounts themselves 2. The individual accounts of the holding company are required for filing along with CT6000 with HMRC... from discussion with other accountants it would appear our practice of filing a full set of accounts with an audit report explaining that they were incorporated in consolidated accounts at Companies House would be common practice. This is also the reason we would ask the client to sign both sets of accounts. 7

8 17. It is further alleged that there were a number of deficiencies in the accounts filed for Company B. These are: (i) No explanation of principal risks and uncertainties. Section 417 of the Companies Act requires the directors report in the accounts to include a business review which contains a description of the principal risks and uncertainties facing the company. ACCA s case is that the business review in the directors report in the Company B accounts does not comply with this requirement. In support of this, ACCA points out that the group accounts, filed in September 2011, contain the following detail, none of which is included in Company B s accounts: The principal risks and uncertainties facing the business are the same as those facing all business in tourism in the UK namely- - The impact of government spending cuts and tax increases on consumer spending - How quickly the economy starts to grow again as a result of the global recession - Future potential increases in interest rates -The impact that the sovereign debt crisis in the Euro Zone will have on the UK economy and on the willingness of individuals to spend on leisure When this matter was put to Mr Patel he accepted, in a letter to ACCA dated 26 March 2012, that more information should have been included in relation to risk and that his firm did not request as much information in relation to the Report of Directors as it should have done. In a subsequent letter to ACCA, responding to a question about the involvement his firm had in the Review of Business contained in the Report of Directors, Mr Patel said: We produced statutory accounts including the director s report using the IRIS software package. We would discuss the contents of the director s report with the client and ask them to draft the information to be included or to provide us with the information so that we could draft 8

9 the report with their input and approval. It is clear that the report is the responsibility of the directors... We accept that we should have discussed with the client the need for fuller information but as previously noted we placed a lot of emphasis on the fuller information in the consolidated accounts. (ii) No disclosure in respect of bank loans and overdrafts. By virtue of regulations 42 and 61(4) of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, the following information must be given by way of a note to the accounts if not given in the company s accounts: In respect of each item shown under creditors in the company s balance sheet there must be stated (a) the aggregate amount of any debts included under that item in respect of which any security has been given by the company, and (b) an indication of the nature of the securities so given It is clear from Company A s group accounts that the group s principal bankers, Bank A, had a number of securities in respect of loans and overdraft facilities given to the group. These included a fixed and floating charge over Company B s assets; a corporate guarantee; and a personal guarantee from Company B s directors. However, this disclosure was not included in Company B s accounts. Mr Patel accepted that it should have been. (iii) No related party disclosures. Financial Reporting Standard 8 ( FRS 8 ) requires disclosure of material transactions undertaken with a related entity. As at year end 2010, an amount in the order of 1.6m was owed to Company B by Company C. Company C was a connected company because it was controlled by the son of two of Company B s directors. However, the notes in the accounts did not disclose this. 9

10 Mr Patel told ACCA that this had been inadvertently omitted. His explanation was that the wrong note had been suppressed when taking exemption from the disclosure of transactions within the group under FRS 8. (iv) Inadequate documentation in relation to a debtor. As part of the audit the Firm obtained written confirmation from Company C of the debt of 1.6m and the accounts include a breakdown of this debt. However ACCA alleges that, in breach of International Standard on Auditing 230, the audit working paper file contained insufficient information to enable an experienced auditor to understand what procedures the Firm had undertaken in respect of the recoverability of this debt. The working papers show that a sample of debts were taken and tested. However the amount owed by Company C which was, by a factor of nearly ten times, larger than any of these debts was not included in this list. There was nothing in the working papers specifically addressing this debt or its recoverability. The letter from Company C only confirms the amount of the debt; it does not address the issue of whether it was recoverable or not. In response to this allegation Mr Patel said that his firm were able to confirm that payments had been made after the year end in reduction of this debt. This confirmation came from discussions with the finance director and was evident from the financial statements and accounting entries post year end. He said that in light of the above the Firm was satisfied the amounts were recoverable, although he accepted that this is not fully evident from the working papers. (v) The closing balance was materially misstated. Company B s accounts included a balance of 1,803,124 in respect of trade creditors. This was lower than the amount of 2,422,044 owed by Company B to its largest supplier, ADP/IATA, alone. This results from the fact that total debit balances of 1,168,814 were recorded within trade creditors. ACCA accepts that this did not have any effect on Company B s overall net asset position and the results for the year would be unaffected. However the consequence was that the balance sheet did not show a true and fair view of the state of the company s affairs because 10

11 (a) it would not be possible for a reader to divine from the accounts that the company owed over 2m to one creditor; and (b) someone comparing the accounts with the previous year s accounts would get a misleading impression of the improvement in the position in respect to trade creditors. (vi) The accounting policy in respect of turnover did not comply with FRS 18. Paragraph 55(a) of FRS 18 states that the following should be disclosed in financial statements: a description of each of the accounting policies that is material in the context of the entity s financial statements... Paragraph 56 goes on to state that the objective of 55(a) is to enable the accounting policies adopted by an entity to be understood by users having a reasonable knowledge of business and economic activities and accounting and a willingness to study with reasonable diligence the information provided. In the 2010 accounts, the accounting policy in respect of Company B s turnover was described thus: Turnover represents net invoiced sales of goods, excluding value added tax. This accounting policy refers to the sale of goods without making reference to the point at which turnover is recognised in the accounts. ACCA alleges this does not adequately describe Company B s policy for recognising turnover and therefore is in breach of paragraph 55(a). Further, ACCA alleges that there was a change in the method that turnover was recognised in the 2010 accounts compared to the previous year. Paragraph 55(c) of FRS 18 says that financial statements should disclose details of any changes to the accounting policies that were followed in preparing financial statements for the preceding period... In the accounts prepared for 2009 trade creditors included 359,511 in respect of Advance Booking. There was no corresponding amount in respect of Advance Booking in trade creditors in the accounts the Firm prepared for The Firm s audit working paper file said that in the past, income was accounted for at the time of the final payment for the holiday or flight to which it related. As a result of a change of staff, a new booking system and due to 11

12 the terms and conditions of trade it had been decided it was more appropriate to recognise income in full at the time of the booking. As a result of this change in policy, profits were recognised sooner than they had been previously. Thus in the 2010 accounts the deferred income carried forward from 2009 would have been recognised in turnover; and, as a result of the new policy, income which would otherwise have been deferred to the following year would have been included in turnover as well. The net effect is that the turnover figure for 2010 would not have been directly comparable with the 2009 figure. Whilst this would not be problematic if there had been a prior year adjustment and a qualification in the accounts, neither of these things in fact happened. Mr Patel was asked whether consideration had been given to include any disclosure in this regard in the company s accounts. In his response he said that the basis used reflects agreements with customers and suppliers; the impact on results is not significant; and the impact on profit would have been in the region of 21.5k which in the context of materiality of 302k is not significant. In light of this, he said that the Firm did not consider that this was a change in policy and decided that no further disclosure was necessary. In a further letter dated 8 June 2012, Mr Patel said that, given the low margins involved, in the majority of cases the non-refundable deposit was more than the profit on the booking. Hence, if anyone cancelled after the booking was made, the effect on income and expenditure would not be material. Whilst ACCA does not dispute that the change made no material difference to the results for the year, it was a breach of paragraph 55(c) of FRS 18 not to have disclosed the change of policy in the accounts. 17. Allegation 3 alleges that issuing an unqualified audit report despite all or any of the above deficiencies amounts to a breach of the fundamental principle of professional competence and due care; and thereby renders Mr Patel liable to disciplinary action on the grounds of misconduct (Allegation 3(a)) or a breach of ACCA regulations (Allegation 3(b)). 12

13 18. Mr Patel s firm resigned as auditors for the group subsequent to the complaint being made. However, in his letter to ACCA dated 28 February 2013 and 29 April 2014, Mr Patel said: The new auditors are not personally known to me but I would point out that they have not made any significant changes to the policies and disclosures and did not qualify their opinion in respect of the opening balances suggesting that they found nothing untoward in the records. I have obtained copies of the accounts filed for the next two years submitted by the new firm of auditors. I would like to highlight a couple of issues in this respect: The incoming auditors have not modified their report in the last two years and there have been no prior year adjustments The related party balance with [Company C] has continued to decrease confirming the observations that we made during our audit. In 2012 accounts the balance had decreased to 99,000. DECISIONS ON ALLEGATIONS AND REASONS 19. At the start of the hearing, Mr Cope on behalf of Mr Patel explained that whilst Mr Patel admitted Allegation 3(a), he did not accept that the failures in respect of 3a(i) and 3a(iv) would by themselves have required qualification of the audit report. However, as the allegation was drafted as all or any of the failings listed would require a qualified audit report, Mr Patel admitted Allegation 3(a). Mr Patel also admitted Allegation 1(b). In accordance with regulation 11(3) of the Disciplinary Regulations, the Committee found these allegations, or parts thereof, proved. In light of the admission to Allegation 3(a) the alternative, Allegation 3(b), was not proceeded with. 20. The Committee went on to consider the remaining allegations in light of the documents before it, the evidence of Mr Patel and two witnesses called on his behalf (Mrs X and Mr A), the submissions of Mr Hopper on behalf of ACCA and Mr Cope on behalf of Mr Patel, and the advice of the Legal Adviser. The Committee bore in mind that the burden of proving an allegation rests on ACCA and the standard to be applied is proof on the balance of probabilities. As it had been invited to by the parties to consider Allegation 2 first, the Committee did so. 13

14 Allegation Mr Patel told the Committee in his evidence he was appointed as auditor for these companies in November In around January or February 2011 he was aware of the need to file group accounts as a result of receiving the previous year s accounts from the previous auditor. He had never previously prepared or audited group accounts. His approach was to prepare company accounts for both companies and then combine them to form the group accounts. 22. He started by preparing the company accounts for Company A and Company B around the end of March/start of April These were required by his clients by May in order to renew their ABTA/ATOL bond. On 12 April the working papers show that he reviewed the accounts, and on the same day sent them by to Mrs X in order for her to check them and alert him to any obvious omissions. He did not send her the working papers; nor did he send her the Company A group accounts because these had not yet been prepared. 23. Mrs X replied immediately, suggesting some relatively minor adjustments. She also said that he needed to do group accounts. He started to prepare the group accounts the same day, namely 12 April He said that all three accounts were completed by 14 April 2011 and on that day he signed the audit reports at Company B s offices in the presence of the directors who also signed them. 24. Companies accounts have to be submitted to Companies House within nine months of the end of the year, and this was diarised. Mr Patel told the Committee that on 8 August 2011 he went to the file and took out the three sets of accounts that he had prepared. However he picked out the wrong set of accounts for Company A, the company accounts rather than the group accounts. Having looked only at the front cover, he put them in an envelope and sent them to Companies House. He said this was a mistake and that he did not properly look at what he was sending before he sent it. 25. Mr Patel denied the allegation that the group accounts had only been prepared after the complaint was received and had been backdated. He said the delay of about three weeks between receiving the complaint and filing the correct accounts was because of the need to clarify with Companies House how a further set of accounts 14

15 could be filed once one set had already been lodged. The new accounts had to bear the word Amended and he added this word to the front page by exporting the accounts from IRIS in to a Word document. Apart from that, he told the Committee, he made no amendments to them. Therefore the group accounts that he filed in September were in fact the ones he had prepared in April. 26. Accordingly he disputed ACCA s allegation that he had lied in his letter of 4 October He said that the differences between the Company B company accounts and the group accounts were due to errors on his part. The fact that there was more detail in the group accounts was due to him spending more time on those. Although he had sent the Company A and Company B company accounts to Mrs X for her to review in April 2011, he did not send the consolidated group accounts to her because he thought he had spent enough time on them and he knew they would be correct. 27. Following receipt of the complaint from ACCA, on or about 1 September 2011, he contacted Mrs X. She was on holiday at the time. She confirmed in her evidence to the Committee that she attended Mr Patel s offices on 12 September 2011 after her return, and this was when she saw the group accounts for the first time. She said, however, that Mr Patel had been aware of the need to prepare group accounts and when she had spoken to him in April she was told they were being prepared. 28. In assessing Mrs X s evidence the Committee bore in mind that she was not an independent witness, having been engaged by Mr Patel to assist him with his audit work over a number of years. At times in her evidence she expressed views which appeared to be trying to justify deficiencies in Mr Patel s work. However, so far as her factual evidence was concerned, the Committee found Mrs X to be a credible witness. It accepted her account of the contact she had with Mr Patel in April 2011 when the accounts were being prepared and in September after the complaint was made. 29. The key features of Mrs X s evidence, which the Committee accepts, were as follows. In April she told Mr Patel that group accounts were required although she did not see them prior to 14 April, the date on which they were apparently signed by Mr Patel and the Directors. The first time she saw the group accounts was on 12 September. She then went away to find out how to file substitute accounts with Companies House. Her oral evidence to the Committee was that she told Mr Patel a day or two later that he needed to file Amended accounts. That would have been by 14th September. 15

16 However, Mr Patel accepts that he did not send the Amended group accounts to Companies House until 23 September. The Committee notes there is no explanation for this further delay of about nine days which, in its view, is of some significance. 30. The Committee accepted the evidence of Mr A, who spoke as to the character and reputation of Mr Patel in the community. He was not able to give the Committee any direct evidence of Mr Patel s ability as an accountant and an auditor, and therefore his evidence was of limited value in assessing his professional integrity. 31. The Committee does not find that there is much or any significance in the fact that the company accounts for Company A contained a signed audit report. Mr Patel s account was that he audited the two sets of company accounts, which he then combined together to produce the consolidated accounts. He did not, in those circumstances, separately audit the consolidated group accounts. The company accounts had to be prepared for submission to HMRC for tax purposes, including a Directors Report and Auditor s Report which Mr Patel said had to be signed. The Committee does not find that the fact that Company A company accounts contain an audit report assists it in determining when Mr Patel prepared the group accounts. 32. However, what the Committee does not accept is Mr Patel s explanation for the difference between the Company A and Company B company accounts, on the one hand, and the Company A consolidated group accounts on the other hand. These differences are significant. They include the securities held by the group s principal bankers (see Allegation 3(a)(ii)), an analysis of the risks and uncertainties facing the business (Allegation 3(a)(i)) and related party disclosures (Allegation 3(a)(iii)). Mr Patel s explanation when he was asked how he could have omitted these from one set of accounts but not the other was, in each case, simply that he must have made an error. 33. Mr Patel only actually performed audits for the company accounts. If he had the information obtained during the audits of these accounts it is inherently unlikely that he would have only have included this information in the group accounts but excluded it from the company accounts. In particular, the failure to include anything in either of the company accounts about the Bank A s securities, but to include them in the consolidated group accounts is inexplicable if Mr Patel was aware of them at the time he was preparing them. The Committee does not accept that all these omissions are simply mistakes. It found his evidence that this was simply error upon error 16

17 lacking credibility. In the Committee's view the only reasonable inference is that in April 2011 Mr Patel did not appreciate these were omissions. He only realised it after seeing the complaint sent to him at the end of August. It was only then that he prepared the group accounts that he submitted on 23 September; and in doing so he addressed the errors that had been highlighted by the complaint. 34. It was also in the Committee s opinion significant that Mrs X did not see the consolidated accounts until after the complaint in August. Mr Patel had not done group accounts before and told the Committee he put particular effort in to preparing these. Given that Mrs X was engaged by him to effectively check his work, it would be surprising if he had prepared the consolidated accounts in April and yet not asked Mrs X to check them. 35. Further, it was improbable in the Committee's view that, having taken so much trouble to prepare the consolidated accounts, he would make a mistake and file the wrong set with Companies House, particulary as by that stage he was under no time pressure. 36. The Committee therefore found, in light of the above, that ACCA has proved on balance of probabilities that the consolidated accounts submitted on 23 September 2011 were not prepared by Mr Patel in April The Committee bore in mind that the Directors Report in the group accounts is signed by Mrs D (no relation to Mr Patel) and dated 14 April There was no evidence before the Committee from Mrs D. However, Mr Patel relied on an from Company B s Financial Controller, Mr B, dated 13 March 2015 and addressed to his representative Mr Cope. The said: As per the information available with me, company accounts for [Company B], [Company A]. and [Company A] (Consolidated) were signed on April 14, 2011 as per the date mentioned on the Directors Report and the Balance Sheet. 38. The Committee was told by Mr Cope that he had tried to clarify Mr B s account, but he had refused to assist further. Therefore the Committee does not know what the information available to him was. It was simply not possible to say, on the very brief account in his , how he had reached this view. Nor did it preclude the possibility 17

18 that a set of group accounts had been signed in April 2011 but had been amended following the complaint in August. Therefore the Committee felt it could place little weight on Mr B s The Committee finds, on the balance of probabilities, that Mr Patel misrepresented to ACCA the date on which the group accounts were prepared. They were prepared after 14 April, and in light of the complaint received by ACCA. Therefore Mr Patel s claim in his letter to ACCA of 4 October 2011 that the full consolidated accounts were prepared at the same time as the company accounts was not accurate and straightforward. The Committee finds that Mr Patel prepared the accounts subsequent to 14 April and therefore he knew it was inaccurate to state what he did. The Committee has no doubt, applying the Ghosh test, that this amounts to dishonesty. Any reasonable and honest person would consider that deliberately lying to his regulatory body was dishonest, and the Committee is in no doubt that Mr Patel would have realised this. 40. The parties accepted that if Mr Patel s actions were found to be dishonest then he would perforce have breached the fundamental principle of integrity. The Committee therefore finds Allegation 2 proved in its entirety. Allegation 1(a) 41. By admitting allegation 1(b) Mr Patel accepts that, by filing company accounts for Company A on 8 August 2011 taking advantage of the small companies exemptions, he breached the fundamental principle of professional competence and due care. Therefore the only issue for the Committee to decide in respect of Allegation 1(a) is whether this amounted to misconduct. 42. ACCA s case is that, in sending accounts to Companies House which wrongly claimed a small companies exemption, Mr Patel s error was so obvious and serious as to amount to misconduct. Mr Patel s case is that this was a simple mistake on his behalf and did not justify a finding of professional misconduct. 43. Whilst the Committee accepts that an error such as this should not happen, the Committee was not satisfied that ACCA had explained sufficiently why this should be regarded as misconduct. This was a single error and not, in the Committee's view, 18

19 either so deliberate or so serious as would justify a finding of misconduct. The Committee therefore finds Allegation 1(a) not proved. Allegation Allegation 3(a) was admitted and therefore there was no need for the Committee to make findings on that allegation. During the course of ACCA s opening it was agreed that the matters set out in sub-paragraphs (i) and (iv) of Allegation 3(a) would not of themselves have required a qualification to the audit report. It was however accepted that these matters amounted to a breach of the fundamental principle of competence and due care. 45. The Committee therefore finds this allegation proved on that basis that subparagraphs (i) to (vi) are all admitted and amount to breaches of the fundamental principle of competence and due care justifying a finding of misconduct; however only sub-paragraphs (ii), (iii), (v) and (vi) would have required a qualification to the audit report. SANCTION AND REASONS 46. In light of its findings on the allegations, the Committee considered what, if any, sanction was appropriate and proportionate. It took in to account the submissions of Mr Cope and Mr Hopper, the advice of the Legal Adviser and ACCA s Guidance for Disciplinary Sanctions ( GDS ). The Committee bore in mind that the purpose of sanctions was not punitive but to protect the public, maintain confidence in the profession and declare and uphold proper standards of conduct and behaviour. 47. The Committee decided it was not appropriate to make no order given the nature of the allegations that had been found proved. It therefore considered the available sanctions in ascending order of severity. 48. Mr Cope reminded the Committee that Mr Patel had been a Member of ACCA for 23 years and had had no previous disciplinary findings against either him or his firm. He submitted that the allegations should be seen in the context of the fact that Mr Patel had been placed under time pressure by his client and was doing work more quickly than he otherwise would have done. He referred to Mr Patel s health conditions and put medical evidence before the Committee. He said that Mr Patel had co-operated 19

20 with the ACCA investigation which had gone on for nearly four years and had caused him great stress. He referred the Committee to the testimonials which show Mr Patel is respected in the community and regarded as a man of honesty and integrity. 49. Mrs X was recalled, after the Committee had made its findings on the allegations, to give evidence in the capacity of an expert in relation to the breaches of audit practice set out in Allegation 3(a). As noted above, Mrs X is not independent of Mr Patel, and the oral evidence she gave was so partial that that the Committee found it difficult to treat her as an expert witness. She was not forthcoming with opinions that were in any way detrimental to Mr Patel and far too anxious to try to justify Mr Patel s work which, on his own admission, was sufficiently deficient as to amount to misconduct Therefore, the weight that Committee could give to Mrs X s views as to the gravity of Mr Patel s failings was extremely limited. 50. The Committee considered that it was appropriate when considering sanction to look first at Allegations 1(b) and 3(a), which relate to the quality of Mr Patel s work, and to separately consider Allegation 2, which relates to dishonesty and lack of integrity. 51. Underlying both Allegation 1(b) and 3(a) was a worrying lack of competence in Mr Patel s work as an auditor and accountant. Having heard evidence and submissions over four days, the Committee was well placed to assess the degree to which Mr Patel s work fell short of acceptable standards. Third parties, particularly those who might become creditors of a company, rely on audited accounts. The omissions made by Mr Patel in his audit were significant and to such an extent that the filed accounts were seriously misleading. In the Committee's view the errors set out in these charges demonstrated serious incompetence. 52. Though this may be regarded as an isolated incident, in that these matters relate to work for effectively one client albeit on more than one set of accounts, the errors were so serious that neither an admonishment nor a reprimand would mark the gravity of the conduct. The Committee was concerned that Mr Patel s competence was so serious that it would be failing in its duty if it did not take steps to protect the public from any future repetition. However, it did not view the breach proved in Allegation 1(b) and the misconduct in Allegation 3(a) as being fundamentally incompatible with continued membership of ACCA. 20

21 53. The Committee decided the appropriate sanction in relation to these two allegations was a severe reprimand coupled with a reference to ACCA s Admissions & Licensing Committee. Pursuant to Regulation 12(8)(a) of the Disciplinary Regulations, the Committee orders that Mr Patel s fitness and propriety to hold a practising certificate and an audit qualification be considered by the Admissions and Licensing Committee as soon as possible and in any event within nine months. In conjunction with that order, pursuant to Regulation 12(8)(b), the Committee suspends Mr Patel s audit registration pending the order of the Admissions and Licensing Committee. 54. In respect of Allegation 2, the Committee considered that no sanction less than a severe reprimand would be appropriate given that dishonesty has been proved. The real issue for the panel in respect of this allegation was whether a severe reprimand, coupled with or without another sanction, would be a sufficient sanction or whether the dishonesty in this case required his exclusion from membership. 55. The Committee decided, on balance, that the appropriate sanction in respect of Allegation 2 was a severe reprimand combined with a fine of 25,000. The Committee accepted that Mr Patel is a man of good character. It was an isolated incident and there is little prospect of repetition, and that persuaded the Committee that it would be disproportionate to remove him from membership. However, any deceit practised by a Member of ACCA must be taken seriously and marked appropriately. A severe reprimand coupled with a fine was, in the view of the Committee, a proportionate sanction in respect of Allegation 2. In setting the level of fine, the Committee took in to account the evidence before it in respect of Mr Patel s means. COSTS AND REASONS 56. ACCA applied for costs in the sum of 9,365. Mr Cope submitted that the time spent by the investigation officer was over and above that which was actually required but made no other submissions in respect of costs. The Committee was of the view that, in light of the fact that the allegations against him have been proved, it was appropriate in principle that Mr Patel should pay costs. It considered that the sum claimed was in all the circumstances reasonable. The Committee therefore ordered Mr Patel to pay costs to ACCA of 9,

22 EFFECTIVE DATE OF ORDER 57. Having ordered that Mr Patel s audit certificate should be suspended pending determination by the Admissions and Licensing Committee of his fitness to continue doing audit work, the Committee had to consider whether to exercise its power under Regulation 19(1)(b) of the Disciplinary Regulations to make that suspension immediate. The Committee bore in mind that it should only make an immediate order if it was in the public interest to do so. 58. Mr Cope submitted that the suspension should not take effect until the expiry of the appeal period or until any appeal lodged within that period had been determined. His principal ground for doing so was that Mr Patel was currently engaged on an audit and it would be necessary for someone to re-do the work he had already done if he was not able to complete it. He submitted that the public could be adequately protected by undertakings which Mr Patel was prepared to give to have this audit hot reviewed and not to undertake any further audit work thereafter. 59. The Committee, having formed the view that it is necessary to suspend Mr Patel s audit registration in order to protect the public, rejected Mr Cope s submissions. It bore in mind that there is no formal mechanism in the Disciplinary Regulations to deal with a breach of an undertaking. Further the Committee was not satisfied that the quality of Mr Patel s audit work, as evidenced by the allegations that he has admitted, is of a standard that undertakings would provide the public with the necessary protection. 60. Therefore the Committee exercised its powers pursuant to Regulation 19(1)(b) to direct that the order it made pursuant to Regulation 12(8)(b), namely the order suspending Mr Patel s audit registration pending a hearing before the Admissions and Licensing Committee, has immediate effect. PUBLICITY 61. ACCA s regulations require ACCA to publish the Committee s findings and orders by way of a news release naming the relevant person as soon as practicable. The Committee has discretion as to which publications the news release should be sent and discretion in exceptional circumstances to direct that the relevant person is not named. There are no exceptional circumstances in this case. The Committee ordered 22

23 that a news release be issued to ACCA s website and to the local and national press referring both to Mr Patel and his firm, Akshar and Company, by name. Dr Vicki Harris Chairman 31 July