ADMISSIONS AND LICENSING COMMITTEE OF THE ASSOCIATION OF CHARTERED CERTIFIED ACCOUNTANTS. Heard on: Wednesday 28 January 2015

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1 ADMISSIONS AND LICENSING COMMITTEE OF THE ASSOCIATION OF CHARTERED CERTIFIED ACCOUNTANTS REASONS FOR DECISION In the matter of: Mr Glyn Davison FCCA Heard on: Wednesday 28 January 2015 Location: Committee: Legal Adviser: Observer: Persons present and capacity: Chartered Institute of Arbitrators, 12 Bloomsbury Square, London, WC1A 2LP Mrs Lubna Shuja (Chair), Mrs Judith Glover (Accountant) and Dr Pamela Ormerod (Lay) Ms Lucia Whittle-Martin Mr Sanjay Lal (New legal adviser) Mr Ian Pickering (Case Presenter) Ms Lucy Annetts (Committee Officer) Mr Tim Grey of Counsel (representing Mr Davison) Mr Glyn Davison (Member) 1. Mr Davison attended and was represented by Mr Tim Grey of Counsel. ACCA was represented by Mr Pickering. 2. The Committee had before it papers numbering pages 1-629, together with tabled papers numbered 630 to 634 and a service bundle numbered BRIEF BACKGROUND 3. Harlands Accountants LLP is a partnership in which Mr G Davison FCCA is the sole principal with audit qualification. The firm was first visited in December 2003 and then in October On both visits the standard of the firm s audit work was found to be satisfactory, although some deficiencies were reported on each occasion causing the firm to be provided with guidance on how the firm might remedy those deficiencies. The firm was then visited for a third time on September The purpose of this third visit was to monitor the standard of the firm s audit work and to

2 confirm the firm s eligibility for registered auditor status and monitoring compliance with the Chartered Certified Accountants Global Practising Regulations 2003 (GPRs). 4. The firm has approximately 13 limited company audit clients and three charities requiring an audit. Three of the company audit files were selected for inspection, namely File 1, File 2 and File The compliance officer who visited in September 2014 concluded that the firm s audit work had deteriorated markedly. 6. In addition circumstances came to light which appeared to cast doubt on Mr Davison s fitness and propriety in that he had issued an audit report on a set of financial statements relating to File 2 without carrying out any audit work. It appeared that Mr Davison had issued an audit report stating that an audit had been carried out when that was not the case. The compliance officer had found no audit plan and no audit work recorded. It was therefore alleged that Mr Davison may not be a fit and proper person under GPR 8(1)(iv) in that he appeared to have committed a material breach of an applicable regulation of the Association. He had also acted contrary to section of ACCA s Code of Ethics and Conduct (CEC). 7. In relation to File 1 and File 3, it was alleged that although there had been an attempt to carry out an audit, the work was not of a satisfactory standard. On these two files the firm had used a standard audit programme but it was not tailored to ensure that it met the needs of the audit of each client. In addition, the firm had not followed and completed all the relevant sections of the programme. As a result the audit opinion was not adequately supported by the work performed and recorded. 8. It was alleged that the firm did not have in place procedures to comply with International Standard on Quality Control 1 (ISQC 1), which requires firms to document their quality control policies and procedures. These should include leadership responsibilities for quality, compliance with the ethical requirements, engagement acceptance and continuance, human resources, engagement performance and monitoring. The firm had not carried out a review of its current procedures to ensure that those complied with the

3 requirements of ISQC 1 and had not adequately documented any procedures it did have. It was suggested that this was reflected in the standard of audit work on the files inspected. 9. In relation to File 1 and 3 it was alleged that the firm did not have adequately documented procedures to comply with ISQC1. Specifically the firm had failed to comply with ISA 210, 220, 230, 240, 260, 265, 300, 315, 320, 330, 450, 500, 520, 550, 560, 570 and It was alleged that Mr Davison and the firm had breached GPR 18(1)(a) in that they had failed to comply with the International Standards on Auditing (UK and Ireland) in the conduct of audit work. It was alleged that there were deficiencies in the planning, control and recording of audit work, and that in all of the cases examined the audit opinions were not adequately supported by the work performed and recorded. It was suggested that there were significant concerns regarding Mr Davison s fitness and propriety to hold a practising certificate under GPR 8(iv). It was alleged that he had committed a serious breach of ACCA s regulations, specifically GPR 18(1)(a) as set out above as well as the fundamental principle of integrity CEC As Mr Davison is the only partner who holds a practising certificate with audit qualification, the firm in which he is a partner would be ineligible to hold an auditing certificate if he were to be deemed not to be fit and proper. 12. If the Committee was to find that Mr Davison was not a fit and proper person, Mr Pickering recommended that Mr Davison s practising certificate with audit qualification and his firm s auditing certificate be withdrawn. He argued that this would represent the minimum regulatory action necessary to protect the public, in line with paragraph 2.5 of the Guidance for Regulatory Orders on proportionality. 13. If the Committee was satisfied that Mr Davison was a fit and proper person, Mr Pickering accepted that the action plan which had now been put in place by Mr Davison to address the auditing deficiencies identified was appropriate.

4 DEFENCE CASE 14. Through his representatives Mr Davison had set out his response in a detailed and helpful letter dated 9 December 2014, supplemented by a set of written submissions dated December The letter described how Mr Davison had become involved in the firm and the difficulties that he faced subsequent to being appointed as a partner due to the ill health of a senior member of staff, and the worsening financial state of the firm, which he managed to turn around. 15. Mr Davison said that the result of the monitoring visit was both a shock and a huge source of shame, and he blamed himself for the shortcomings in relation to each company file. He claimed that the work had in fact been carried out in each case, to a greater or lesser degree, but he accepted that the work was either not documented appropriately or not documented at all. 16. In relation to File 2 it was argued on Mr Davison s behalf that this organisation had been a client of the firm since October 2000, but that Mr Davison had not been given responsibility for it until the year ended 31 March It was submitted that 2013 was the first year since Harlands appointment that an audit report had been required. Mr Davison acknowledged that he had been naïve and foolish to have signed a report without properly checking that evidence was in the file, and without checking that the audit had been properly conducted and undertaken comprehensively. He said that he had relied too heavily upon the work and assurances of others. 17. It was submitted on his behalf that the audit file relating to File 2 was an isolated incident in an otherwise exemplary audit career, and that the two other files inspected and found to have been wanting did not demonstrate such profound deficiencies. 18. A number of comments were put forward by Mr Davison in response to the report compiled by ACCA. It was suggested that whilst no audit working papers were available for inspection in relation to File 2 a large amount of work had been done over the years resulting in considerable knowledge of

5 the organisation s systems, controls, assets and liabilities. Mr Davison accepted that on Files 1 and 3 the full audit programme was not complete, however he submitted that Harlands had signed engagement letters for these files, which were available for inspection, albeit that they had not been placed before the compliance officer. Other documents were located and produced that dealt with other complaints raised in the report. These were included in the Bundle before the Committee. Mr Davison accepted many of the complaints made in the report, although with qualification, as set out in the letter provided by his representatives. 19. Mr Davison put forward three referees as to his fitness and propriety, one of whom had worked with Mr Davison in the provision of Leadership and Management Training Services, who stated that he always found Mr Davison to be professional and a man of impeccable character who was dedicated to Harlands and was fit to retain membership with ACCA. 20. Finally, in the written documentation submitted on his behalf, Mr Davison accepted that his actions had presented a risk to the public, and had the potential to undermine the reputation of the profession. Consequently he had taken steps to ensure that the audit elements of his practice were now fit for purpose, in that: he had purchased appropriate guidance from an ACCA approved training provider on ISQC1; Mr Davison had also documented an operational project plan to communicate the planned changes to the firm; he was presently making arrangements with a provider of ACCA training courses to come to the firm to give training to all staff engaging in audit work, including himself; he had approached an approved ACCA audit reviewer in order to set up informal cold reviews of the firm s audit files but had now made provision for hot reviews of current live audit files 21. In his written documents Mr Davison had reflected, and now acknowledged that he had been trying to keep too many plates spinning at once. He

6 welcomed whatever conditions the Committee saw fit in order to improve his practice and to ensure that he never appeared before the Committee again. 22. In his oral submissions before the Committee Mr Grey accepted in relation to Files 1 and 3 that there had been breaches, albeit that Mr Davison did not accept the entirety of the breaches that had been alleged. 23. In relation to File 2 Mr Grey submitted that Mr Davison had taken immediate steps to remediate the situation having understood that the situation was serious. Mr Grey accepted on behalf of Mr Davison that there had been a grave and fundamental error in relation to this file and that this was of concern to all. However there had been no intention to mislead. Mr Grey reiterated some of the difficulties that Mr Davison had faced when working at the firm. He submitted that this had been an isolated incident. 24. In giving evidence Mr Davison accepted in relation to Files 1 and 3 that they were not to the required standard however he argued that the standard required in 2014 was higher than had been required in his last monitoring visit in He accepted he had not kept up to date technically with the change in standards. 25. In evidence Mr Davison said, in relation to File 2, that he had not become involved with the organisation until the year ended 31 March 2012, but that his firm had a history of acting for this client since 2000 so knew it well. He explained some personal difficulties within his private life that were adding to the pressures of his job at this time. He accepted that it had not been right to sign this audit. He said that in doing so he had relied upon information that had been provided to him by another member of the firm who had since left. However he accepted that it had been his responsibility to check the information that had been given to him. He took the Committee through the documentation that had been produced by him, which included an internal control questionnaire and notes of meetings on File 2. He explained his attempts to remediate his position. As managing partner of the firm he had made alterations to the management structure to ensure that there were more robust procedures and greater accountability. He provided the Committee with some character references. He explained that there was a risk that he would lose a significant proportion of his client base if his audit

7 certificate were to be removed. This would impact upon his staff. He said that he would not take on a new audit client at this point in time if he were asked to do so. 26. It was submitted that to remove either audit qualification or practising certificate would be disproportionate in light of the firm s previous satisfactory visits and Mr Davison s otherwise exemplary auditing record. It was pointed out that Mr Davison had never had a complaint issued against him by any client. 27. Mr Grey submitted that the appropriate order in all the circumstances would be to impose conditions on Mr Davison s certificate. DECISION 28. The Committee had regard to the Guidance for Regulatory Orders published by ACCA. The Committee accepted the advice of the Legal Adviser. 29. The Committee first asked itself whether Mr. Davison was a fit and proper person within the meaning of the regulations. 30. It had been accepted on Mr. Davison s behalf that he had committed a material breach. The Committee took that into account together with all the other circumstances of the case. It approached its decision on the basis that this was an isolated event, that there had been no complaint raised against Mr Davison in the past, he had an otherwise unblemished career and had been the subject of two earlier satisfactory monitoring visits. 31. The Committee concluded that that Mr Davison s behaviour in relation to File 2 amounted to a serious breach. However the Committee was impressed by the excellent references that had been submitted on his behalf and by the fact that he had already put in such a large amount of work in his attempt to remedy the situation. The Committee found Mr Davison to be both open and frank. He had shown a willingness to achieve the standard expected of him. The Committee also bore in mind that Mr Davison had produced an action plan that was acceptable to ACCA.

8 32. Whilst the Committee was satisfied that Mr Davison had committed a serious breach nevertheless, in all the circumstances, the Committee came to the conclusion that he is a fit and proper person to continue to practise. 33. The Committee noted that the deficiencies related solely to Mr Davison s audit work and had been addressed by an action plan. The Committee expected Mr Davison s firm to be able to show compliance with ISQC1 in accordance with the action plan. 34. The Committee decided that to take no further action would be inappropriate due to the seriousness of the breach in relation to File 2 and the fact that Files 1 and 3 were also of an unsatisfactory standard. It concluded that the failings had not occurred for exceptional reasons. 35. The Committee went on to consider the imposition of conditions on his and his firm s audit certificates and decided that this would be the appropriate and proportionate response and that the public would be adequately protected if he were to be permitted to continue to practise with an audit certificate. File 2 was a serious but nevertheless isolated incident. The deficiencies on Files 1 and 3 appeared to be remediable. Mr Davison appeared to be willing and able to achieve and maintain a satisfactory standard in future. Mr Davison had already put a number of procedures in place, as outlined earlier in this determination. The Committee decided to impose conditions that would ensure that those procedures were effective. This would allow Mr Davison and the firm to remedy the deficiencies highlighted by the report whilst at the same time putting in place safeguards to protect clients and the public. This would also maintain confidence in the profession and maintain proper standards of conduct. 36. Accordingly the Committee made an order pursuant to Authorisation Regulation 5 (2) (f) that Mr Davison and Harlands Accountants LLP be required to: (i) provide Governance Practice Monitoring within 30 days of the date of written notification of this decision with a list of current audit clients, identifying any Public Interest Entity audits;

9 (ii) (iii) (iv) (v) (vi) (vii) promptly notify Governance Practice Monitoring if the firm accepts any audit appointments or if any of the audits identified in i above ceases to be an audit client at any time in the future while this decision remains in effect; have a sample of audit files selected by ACCA on audit clients identified in i and ii above and confirmed by Governance Practice Monitoring reviewed by a training company before audit reports are signed, such training company being subject to ACCA approval; notify ACCA of the identity of the training company referred to in iii above within 14 days of the date of Governance Practice Monitoring confirming the audit clients to be subject to review in accordance with i and/or ii above; submit all reports prepared by the nominated training company (including details of how the firm has addressed the points raised by the reviewer) pursuant to iii above to Governance Practice Monitoring within seven days of signing the audit report; be subject to an accelerated monitoring visit within 2 years at a cost to the firm of 1,000 and 400 for each additional audit qualified principal; and note that failure to make the necessary improvements in the level of compliance with auditing standards and with the requirements of any regulators by that time will jeopardise his and his firm s continuing audit registration. 37. The Committee considered the possibility of suspension and decided that this would be disproportionate in all the circumstances. EFFECTIVE DATE OF ORDER 38. The Committee noted that the Condition (i) required action within 30 days and therefore decided that it was in the interest of the public for this order to have immediate effect. Neither party objected to this.

10 PUBLICITY 39. 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. Mr Grey suggested that the fact that Mr Davison operated in a small market might amount to exceptional circumstances. However the Committee rejected this because it was not unusual for practitioners to operate in a small business community. Accordingly the Committee ordered that a news release be issued to ACCA s website and to the local press referring to Mr Davison by name. Mrs Lubna Shuja Chair 28 January 2015