CONSENT ORDERS COMMITTEE OF THE ASSOCIATION OF CHARTERED CERTIFIED ACCOUNTANTS. The Adelphi, 1-11 John Adam Street, London WC2N 6AU

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1 CONSENT ORDERS COMMITTEE OF THE ASSOCIATION OF CHARTERED CERTIFIED ACCOUNTANTS REASONS FOR DECISION In the matter of: Mr Myron Lipson Heard on: Monday, 12 June 2017 Location: Committee: Legal Adviser: Persons present and capacity: The Adelphi, 1-11 John Adam Street, London WC2N 6AU Mr James Kellock (Chairman) Miss Juliet Gibbon Miss Subagarey Pathmanathan (Hearings Officer) PRELIMINARY 1. The Committee convened to consider Mr Myron Lipson s case today originally consisted of three Committee Members, the Chairman, an Accountant Member and a Lay Member. The Chartered Certified Accountants Regulatory Board and Committee Regulations 2014, as amended on 1 January 2017, however, provides that: the Consent Orders Committee shall consist of either a Chairman and a Legal Adviser, or an Assessor and a Legal Adviser. In the circumstances the Chairman determined that he would consider the case in the absence of the other two Committee members. 2. The Consent Orders Committee consisting of the Chairman sitting with the Legal Adviser who played no part in the decision making ( the Committee ) convened in private to consider whether it should approve the making of a Consent Order in respect of Mr Lipson. It had before it a bundle of papers numbering and a copy of the draft Consent Order, numbered A-N signed by Mr Lipson and ACCA.

2 3. The Committee also had sight of the Notice of Hearing, dated 6 June 2017, sent to Mr Lipson at his address on the Register and by , informing him that the Consent Orders Committee was meeting on 12 June 2017, to consider the draft Consent Order draft agreement. ACCA had previously informed Mr Lipson that there was a possibility that the hearing could be scheduled on 12 June Mr Lipson replied by on 19 May 2017, waiving his right to the requisite 28 days notice in an dated 19 May The Committee determined that proper notice had been given to Mr Lipson and that it was appropriate to proceed. BACKGROUND 4. Mr Lipson was admitted as a member of ACCA on 15 March 2002 and he became a Fellow on 15 March He is the sole practitioner in the firm Lipson & Co Limited. 5. Mr Lipson s case comes before the Committee by virtue of a draft Consent Order agreement that has been reached between ACCA and Mr Lipson. The agreement sets out his full admissions to the allegations made against him and his acceptance that he is thereby guilty of misconduct. It is agreed that the appropriate sanction in this case would be a Severe Reprimand. The draft agreement was signed by Mr Lipson on 17 May 2017, and by ACCA on 18 May The agreement between ACCA and Mr Lipson is as follows: CONSENT ORDER: DRAFT AGREEMENT Association of Chartered Certified Accountants and Mr Myron Lipson ("the parties") agree as follows: 1. Mr Myron Lipson admits the following charges:

3 Allegation 1 a) Mr Myron Lipson failed to obtain professional clearance from the previous auditors of Company A and Company B in breach of paragraphs and A of Section 210 Professional appointment (2015 and 2016 as applicable). b) In relation to the facts in allegation 1(a), Mr Myron Lipson is liable to disciplinary action pursuant to bye-law 8(a)(iii). Allegation 2 a) Mr Myron Lipson accepted appointment as statutory auditor where there was an imposed limitation of scope contrary to paragraph 7 of International Standards on Auditing (UK and Ireland) 210 Agreeing the terms of audit engagements for any or all of the following: i. Company A; and ii. Company B b) In relation to the facts in allegation 2(a) Mr Lipson is in a breach of paragraph 130.1(b) of the fundamental principle of Professional competence and due care. c) In relation to the facts in allegation 2(a) and 2(b), Mr Myron Lipson is liable to disciplinary action and guilty of misconduct pursuant to byelaw 8(a)(i). Background and facts 2. The facts are as follows: 2.1 Mr Lipson who holds and Practising Certificate with audit for the UK and Ireland is also the sole director of Lipson & Co Limited ("the Firm") which holds a FAC for UK and Ireland.

4 2.2 On 26 February 2014 an audit report was signed by Person A for Company B for the year ended 31 August 2013 financial statements. The audit report gave a disclaimer opinion due to the limitation in evidence available to form an opinion on the financial statements.

5 2.3 On 28 July 2014 an audit report was signed by Person A for Company A for the year ended 31 December 2012 financial statements. The audit report gave a disclaimer opinion due to the limitation in evidence available to form an opinion on the financial statements. 2.4 On 12 February 2015 Lipson & Co issued a letter of engagement to Company B appointing them as auditors. This appointment was to have effect for the audit of Company B's financial statements from year ended 31 August 2014 onwards. This letter was signed by Company B on 19 February On 13 February 2015 Lipson & Co issued a letter of engagement to Company A appointing them as auditors. This appointment was to have effect for the audit of Company A's financial statements from year ended 31 December 2013 onwards. This letter was signed by Company A on 16 February On 24 February 2015 the directors of Company B approved the financial statements for year ended 31 August These contained an audit report signed but not dated by Mr Myron Lipson. The audit report to members contained a qualified opinion regarding the lack of information about the ultimate beneficial ownership of the company shares and whether the company had complied with the provisions of Financial Reporting Standard, FRS 8 Related Party Transactions. 2.7 On 6 January 2016 an audit report was signed by Mr Myron Lipson FCCA for Company A for the year ended 31 December 2013 financial statements. The audit report gave a disclaimer opinion due to the limitation in evidence available to form an opinion on the financial statements. 2.8 On 12 April 2016 a representative from ICAEW brought ACCA's attention to the audit reports referred to in 2.2, 2.3, 2.6 and 2.7 above and the imposed limitation of scope. This was provided on a regulator to regulator basis only and ICAEW were not considered a complainant under the ACCA Complaints

6 and Disciplinary Regulations. 2.9 On 18 May 2016 Mr Lipson wrote to the Senior Investigations Officer and confirmed that there were administrative failings which occurred due to personal circumstances. Consequently professional clearance was never requested or obtained for Company A and/or Company B On 15 March 2017 Mr Lipson ed the Senior Investigations Officer confirming that he had sought advice from Organisation A, an organisation which provides accountants with technical advice, regarding the limitation of scope matter. Mr Lipson accepted following Organisation A's advice that he should not have accepted the audit appointments where there was a limitation of scope. Liability to disciplinary action 3. In light of the facts set out above and by his own admission, Mr Lipson failed to request and obtain professional clearance from the outgoing auditor contrary to Section 210 Professional Appointment paragraphs and 201.9A, and is liable to disciplinary action pursuant to bye-law 8(a)(iii). 4. In light of the facts and by his own admission Mr Lipson accepted the appointment as Auditor for Company A and/or Company B where there was an imposed limitation of scope contrary to Section 130.1(b) Professional competence and due care by virtue of acting contrary to ISA 210 (UK and Ireland) International Standards on Auditing paragraph 7, and is liable to disciplinary action pursuant to bye-law 8(a)(i). 5. In Roylance v General Medical Council (No 2) the Privy Council stated: "Misconduct is a word of general effect, involving some act or omission which falls short of what would be proper in the circumstances. The standard of propriety may often be found by reference to the rules and

7 standards ordinarily required to be followed by a medical practitioner in the particular circumstances." 6. Bye-law 8(c) states that misconduct includes "any act or omission which brings, or is likely to bring, discredit to the individual or relevant firm or to the Association or to the accountancy profession." 7. It is accepted by both parties that Mr Lipson's behaviour in accepting audit appointments where there are imposed limitations of scope has led to a breach of Section 130.1(b) Professional Competence and Due Care and brings discredit to himself, ACCA and the profession and constitutes misconduct pursuant to bye-law 8(a)(i). Mr Myron Lipson's response Limitation on Scope Prior to Audit Engagement Acceptance 8. If management or those charged with governance impose a limitation on the scope of the Auditor's work in terms of the proposed audit engagement such that the Auditor believes the limitation will result in the Auditor disclaiming an opinion on the Financial Statements, the Auditor shall not accept such a limited engagement as an audit engagement, unless required by Law or Regulation to do so. 9. On 18 May 2016, Mr Lipson wrote to the Senior Investigations Officer and stated: In respect of Company A: a) That neither Mr Lipson nor his firm act for the Company in any capacity. b) That consideration was given to the fact that the beneficial owners of the company could not be identified. Further consideration was given

8 F to prior qualifications, and similar qualifications were maintained. In respect of Company B: c) That neither Mr Lipson nor his firm act for the Company in any capacity. d) That consideration was given to the fact that the beneficial owners could not be identified and the prior qualifications. However it was felt that sufficient audit evidence could be obtained, similar qualifications were not made. 10. Other mitigation e) That in March 2015, Mr Lipson was faced with an acrimonious break-up with a former business partner in another business which shared the same office space. f) Mr Lipson has apologised for the administrative oversights regarding his failure to request and obtain professional clearance from the previous auditor. g) That Mr Lipson is reviewing all assignments both audit and non-audit to ensure all necessary documents are in place and are current. As of 21 April 2017, Mr Lipson believed 90% has been completed. The remainder will be reviewed and updated where necessary before commencement of the next assignment for those clients remaining. 11. Under cover of a letter dated 31 August 2016, Mr Lipson wrote to the Senior Investigations Officer and provided the following: a) Copies of the anti-money laundering documentation for the ultimate beneficial owners for both Company A and Company B obtained during the client take on process.

9 b) A statement that all the beneficial owners had explicitly requested that they remain anonymous, and that the beneficial owners were satisfied that this meant that any Audit reports would continue to be qualified. c) Mr Lipson could not recall the rationale behind the anonymity but Mr Lipson remembered that this was an unusual request from a prospective client. 12. On 24 February 2017, Mr Lipson ed the Senior Investigations Officer and admitted failing to obtain professional clearance in respect of Company A and Company B. 13. On 15 March 2017 Mr Lipson ed the Senior Investigations Officer confirming that he had consulted with Organisation A, who provide accountants with technical advice. This followed discussions with the Senior Investigations Officer on 6 March Mr Lipson confirmed that Organisation A felt that whilst there were some minor technical errors, these would not deter the fact that Mr Lipson and Lipson & Co should not have accepted the appointments if there was a limitation of scope. Mr Lipson accepted the outcome of the consultation with Organisation A and that there was a limitation of scope in respect of the appointments. 14.It is accepted by Mr Lipson and Lipson & Co, that by Mr Lipson accepting the appointment as Statutory Auditor where there were imposed limitations of scope this brought discredit to himself, the Association and the accountancy profession and he is therefore guilty of misconduct. Relevant Failings and/or Breaches 15. The failings and/or breaches are set out above, and the relevant byelaws and regulations are set out below.

10 Liability to disciplinary action 8(a) A member or relevant firm... shall, subject to bye-law 11, be liable to disciplinary action if: (i) He or it, whether in the course of carrying out his or its professional duties or otherwise, has been guilty or misconduct;... (iii)or it has committed any breach of these bye-laws or of any regulations made under them in respect of which he or it is bound; (c) For the purposes of bye-law 8(a), misconduct includes (but is not confined to) any act or omission which brings, or is likely to bring, discredit to the individual or relevant firm or to the Association or to the accountancy profession. Section 210 Professional appointment (2015 as applicable) Changes in a professional appointment A professional accountant in public practice who is asked to replace an existing accountant, or who is considering tendering for an engagement currently held by an existing accountant, shall determine whether there are any reasons, professional or otherwise, for not accepting the engagement, such circumstances that create threats to compliance with the fundamental principles that cannot be eliminated or reduced to an acceptable level by the application of safeguards. For example, there may be a threat to professional competence and due care if a professional accountant in public practice accepts the engagement before knowing all the pertinent facts.

11 210.10A Communication with the existing accountant is not just a matter of professional courtesy. Its main purpose is to enable a professional accountant to ensure that there has been no action by the client which would on ethical grounds preclude the professional accountant from accepting the appointment and that, after considering all the facts, the client is someone for whom the professional accountant would wish to act. Thus, a professional accountant shall communicate with the existing accountant on being asked to accept appointment for any recurring work, except where the client has not previously had an accountant acting for them. Section 130 Professional competence and due care (2015 and 2016 as applicable) The principle of professional competence and due care imposes the following obligations on all professional accountants: (a)... (b) To act diligently in accordance with applicable technical and professional standards when providing professional services Diligence encompasses the responsibility to act in accordance with the requirements of an assignment, carefully, thoroughly and on a timely basis. International Standard on Auditing (UK and Ireland) 210 Agreeing the terms of audit engagements (Effective for audits of financial statements for periods ending on or after 15 December 2010) 1. This International Standard on Auditing (UK and Ireland) (ISA (UK and Ireland)) deals with the auditor's responsibilities in agreeing the terms of the audit engagement with management and, where appropriate, those charged with governance. This includes establishing that certain preconditions for an audit, responsibility for which rests with management

12 and, where appropriate, those charged with governance, are present. ISA (UK and Ireland) 220 deals with those aspects of engagement acceptance that are within the control of the auditor. Requirements Preconditions for an Audit Sanction 16. The appropriate sanction is a severe reprimand. 17. In considering this to be the most appropriate sanction, the Association's Guidance for Disciplinary Sanctions ("the Guidance") has been considered and particularly the key principles. One of the key principles is that of the public interest, which includes the following: Protection of members of the public; Maintenance of public confidence in the profession and in the Association; Declaring and upholding proper standards of conduct 18. Another key principle is that of proportionality, that is, balancing the member's own interests against the public interest. Further, the aggravating and mitigating features of the case have been considered. 19. The aggravating factors are considered to be as follows: 19.1 Mr Lipson's failure to seek professional clearance from the existing auditor raises significant concern over whether the reasons behind the previously disclaimed Audit Reports were considered and had been addressed.

13 19.2 Mr Lipson agreed to the anonymity of the ultimate beneficiaries for which Company A and Company B had acknowledged would lead to qualified Audit Reports, and this was accepted at the outset. This questions the integrity of the Company A and Company B Mr Lipson had considered that ISA 210 paragraph 7 did not apply until he sought technical advice from Organisation A. Following that advice, Mr Lipson accepted that the audit engagements should not have been accepted. 20. In deciding that a severe reprimand is the most suitable sanction paragraphs C4.1 to C4.5 of the Association's Guidance have been considered. A severe reprimand is usually applied in situations where the conduct is of a serious nature but there are particular circumstances of the case or mitigation advanced, as set out below, which satisfy the Committee that there is no continuing risk to the public, and there is evidence of the individual's understanding and appreciation of the conduct found proved. 21. The mitigating factors are to be considered as follows: 21.1 Mr Lipson has been a member of the Association for 15 years and has no previous disciplinary history; although Mr Lipson was before the Admissions and Licensing Committee on 10 February 2015, at which conditions were imposed including selected files for review by a training company prior to signing the audit report. The conditions also include an accelerated monitoring visit by 2 years of the hearing date Mr Lipson fully co-operated with the investigation and regulatory process; 21.3 Mr Lipson has advocated genuine remorse and contrition The misconduct is no longer continuing, although the member

14 acted recklessly. 22. A severe reprimand proportionately reflects Mr Lipson's misconduct and the public policy considerations which the Association must consider in deciding on the appropriate sanction. This is a public interest sanction due to bringing discredit to the Association; this conveys a message of the importance of fundamental standards of professional conduct. 23. The other possible sanctions have been considered, in ascending order. 24. It was deemed that to take no further action in this matter would not be appropriate or proportionate and would not adequately address the severity of the misconduct or the public interest in this case. 25. An admonishment was not considered appropriate, as this sanction is applicable for cases at the lower end of the spectrum of misconduct, and Mr Lipson's misconduct is of too serious a nature. 26. A reprimand was not considered appropriate, as this sanction is applicable for cases where conduct is of a minor nature and there appears to be no continuing risk to the public. Therefore it is not appropriate to consider imposing a reprimand on Mr Lipson. 27. It is considered that exclusion from membership would be disproportionate in all the circumstances of this case, as this is not the only sanction which will be sufficient to protect the public. Costs 28. Mr Lipson has agreed to pay costs to the Association in the sum of 2,

15 Publicity 29. The Association's regulations require the Association to publish the Committee's findings and orders by way of a news release naming the relevant person, as soon as practicable. Both parties are agreed that there are no exceptional circumstances in this case to direct that Mr Lipson is not named. Accordingly, an order for a news release be issued to the Association's website referring to Mr Lipson by name is made. 30. The parties understand that this provisional agreement cannot bind a Committee, and that the final decision on findings of misconduct and sanction is a matter for the Committee. The parties understand that, in the event that a Committee does not agree with this provisional agreement, the admission to the allegation set out at paragraph 1 above, and the agreed statement of facts set out in paragraph 2 above, may be placed before a differently constituted Committee that is determining the allegation, provided that the member agrees and it would be relevant and fair to do so. Dated 17 May 2017 Mr Myron Lipson Signed / ' v Dated 18 May 2017 (For and on behalf of the Association)

16 Appendices Document Page No to ACCA from ICAEW 1 2 to ICAEW from ACCA 3 4 to ACCA from ICAEW 5 to ICAEW from ACCA 6 ACCA System Print Outs 7 13 Company A y.e Company B y.e Letter of engagement Company A Letter of engagement Company B Company B Know Your Client checklist and associated documents Company A Know Your Client documents Company A y.e Company B y.e Letter to Member from ACCA Letter to Member from ACCA Letter to ACCA from Member Letter to Member from ACCA Telephone Attendance note between ACCA and Member Letter to Member from ACCA to Member from ACCA 167 Letter to Member from ACCA 168 to Member from ACCA 169 to ACCA from Member 170 to Member from ACCA 171 to ACCA from ACCA 172 Letter to ACCA from Member Letter to Member from IT Service provider to ACCA from Member 177 to Member from ACCA 178 to Member from ACCA to ACCA from Member 181 to Member from ACCA 182 to ACCA from Member 183 to Member from ACCA 184

17 to ACCA from Member 185 Telephone attendance note between ACCA and Member

18 to Member from ACCA 188 Letter to Member from ACCA with enclosures to Member from ACCA 209 to ACCA from Member 210 to Member from ACCA 211 Decision of ACCA Admissions and Licensing Committee DECISION 7. In determining this matter the Committee had regard to the Consent Order report and the draft agreement set out above. The Committee had regard to ACCA s Consent Orders Guidance and it accepted the advice of the Legal Adviser. 8. The Committee bore in mind that, notwithstanding that the parties had reached agreement, the final decision on whether the admitted facts amount to misconduct, the appropriate sanction and costs remain a matter for the Committee. It has the power to approve, reject or propose amendments to the draft Consent Order. 9. The Committee first considered whether it was appropriate to deal with the complaint by way of a Consent Order. The Committee was satisfied that the Investigating Officer had conducted the appropriate level of investigation in order to be satisfied that there was a case to answer against Mr Lipson and a real prospect of a reasonable tribunal finding the allegations against him proved. Further, the Committee was satisfied that the allegations made against Mr Lipson, if found proved, would be unlikely to result in a sanction of exclusion from membership of ACCA. The Committee was, therefore, satisfied that it was appropriate to deal with this matter by way of a Consent Order. 10. The Committee next considered whether to approve the draft Consent Order agreed by the parties. It carefully considered the allegations made against Mr Lipson. It was satisfied that Mr Lipson admitted the allegations in

19 full and it agreed with the Investigating Officer that: (i) (ii) The admitted facts of Allegation 1 made Mr Lipson liable to disciplinary action pursuant to bye-law 8(a)(iii) in that he should have obtained professional clearance from the previous auditors of Company A and Company B prior to accepting the appointments as statutory auditor and The admitted facts of Allegations 2(a) and (b) made Mr Lipson liable to disciplinary action and amounted to misconduct in that he brought discredit to himself, the accountancy profession and the association by accepting the two appointments as statutory auditor when there were limitations of scope in place in respect of both companies. The Committee took into account the case of Roylance v GMC No 2 [2000] 1 AC 311 when considering whether the admitted facts of Allegations 2(a) and (b) amounted to misconduct. 11. The Committee next had regard to ACCA s Guidance for Disciplinary Sanctions and the aggravating and mitigating factors set out in the draft Consent Order. The Committee agreed, having considered the sanctions in order, starting with the least serious, that a severe reprimand was the appropriate and proportionate sanction to protect the public and maintain confidence in the profession. The Committee agreed with the reasons set out by the Investigating Officer in the draft Consent Order. COSTS 12. The Committee agreed with the parties agreement that Mr Lipson should pay 2, to ACCA by way of costs. 13. Accordingly the Committee approved the draft Consent Order in its entirety. Mr James Kellock Chairman 12 June 2017