ADMISSIONS AND LICENSING COMMITTEE OF THE ASSOCIATION OF CHARTERED CERTIFIED ACCOUNTANTS REASONS FOR DECISION In the matter of: Mr Abdus Salam Heard on: Monday, 4 December 2017 Location: Committee: Legal Adviser: Persons present and capacity: OUTCOME: The Chartered Institute of Arbitrators, 12 Bloomsbury Square, London, WC1A 2LP Mr John Crawley (Chairman) Ms Wanda Rossiter (Accountant Member) Mrs Suzanne McCarthy (Lay Member) Mrs Fiona Barnett Ms Samantha Hatt ACCA Case Presenter Miss Subagarey Pathmanathan ACCA Hearings Officer Mr Abdus Salam Member Mr Martyn Berkin Counsel on behalf of Mr Salam Mr Salam s practising certificate with audit qualification to be withdrawn. Firm s audit certificate to be withdrawn. Order to take effect immediately. 1. Mr Salam attended and was represented by Mr Martyn Berkin, of Counsel. BACKGROUND 2. AS Associates ( the Firm ) is the sole practice of Mr Salam. 3. The first monitoring visit took place at the Firm on 16 November 2004. The work on regulated clients was found to be generally in accordance with the regulators requirements. The Firm had no audit clients at that visit. 4. The second visit took place on 19 November 2010. ACCA found that there were significant deficiencies in the Firm s regulated work and recommended
that the Firm should employ a training organisation to cold review a sample of files to advise on any necessary improvements. 5. At the third monitoring visit on 13 February 2015, Mr Salam disclosed that the Firm had one audit client and two solicitor clients. However, a prior search of Companies House records by ACCA had revealed an additional audit client. The audit file disclosed by Mr Salam at the time of the visit was inspected, and later, in June 2015, Mr Salam delivered three files to ACCA in respect of the undisclosed audit client. These were inspected on 17 June 2015. ACCA found a number of serious deficiencies in the standard of audit work on both files and that, consequently, the audit opinions were not adequately supported by the work performed and recorded. In addition, some serious deficiencies were found in the work undertaken by the Firm for a solicitor client in support of the Report to the Solicitors Regulation Authority, ( SRA ). The Firm subsequently completed an action plan and submitted it to ACCA. Having confirmed that the plan was satisfactory, ACCA opted to carry out a further visit in 2017. 6. This visit (the fourth) took place at the Firm on 2 May 2017. The purpose of this visit was to ascertain whether the Firm had remedied previous deficiencies in its conduct of audit and regulated work. 7. At the time of this visit, the Firm had two limited company audit clients and both audit files were inspected at the visit. It also has two solicitor clients on which it reports to the SRA. The compliance officer found in respect of the two companies that the Firm had not adequately improved its audit procedures since the previous visit, and the audit opinions were not properly supported. Most of the deficiencies reported had been identified at the previous visit. The Firm s work on reports to the SRA was largely in accordance with the regulator s requirements. 8. In its consideration of this matter, the Committee had before it a bundle with pages numbering 1 to 25 and an additional bundle with pages numbering 26 to 28. The main bundle included a report ( the Report ) to the Committee by ACCA s Senior Compliance Officer who had conducted the May 2017 visit, numbering some 8 pages. During the hearing, the Committee was also provided with two action plans - provided to ACCA by Mr Salam, together
with the quality procedures for the Firm - and correspondence between Mr Salam and ACCA. APPLICATION 9. Ms Hatt, on behalf of ACCA, submitted that given Mr Salam s breaches of International Standards on Auditing (ISAs) there had been a material breach of Practising Regulation ( PR ) 13(1). Considering this, she invited the Committee to withdraw the Firm s auditing certificate and Mr Salam s practising certificate with audit qualification and to reissue him with a practising certificate. 10. Ms Hatt submitted that the Committee, in deciding what action to take to protect the public interest, should take into account, in particular, the fact that there was no improvement in the standard of Mr Salam s audit work after the third visit. She submitted that there was little prospect of the Firm sustaining a satisfactory standard of work in future. She referred the Committee in particular to paragraphs 6.3.3, 7.2.8 and 8.2.8 of the Guidance for Regulatory Orders eligibility for certificates or licences and unsatisfactory outcomes to monitoring visits, updated November 2014, ( GRO ). EVIDENCE 11. Mr Salam gave evidence to the Committee. In summary, he said that after the third monitoring visit, the Firm presented its action plan to ACCA in June 2016. (He later accepted in light of the correspondence exhibited that it was in fact submitted on 31 March 2016.) He said there was then only a short period from the submission of the plan to the completion of the two audits which were subsequently inspected at the May 2017 monitoring visit, and that this was not enough time to implement the changes from the action plan, as most of the audit work had been done. He said there was insufficient time to appoint a training company to cold review the files and delays were also caused as a result of the software programmes used. He disputed that there was no improvement between the third and fourth visits, explaining that the regulated work met the required standard at the fourth visit.
12. Mr Salam said that his firm has a plan to merge with another firm and the incoming partner is an audit expert who will monitor all their audit work. He accepted that there were some deficiencies in recording of audit opinions, but said that the action plan has now been fully implemented and the 2017 audits have been carried out in accordance with the required standards. He invited ACCA to make a further visit in 2018 at his expense. 13. In answering the Committee s questions, Mr Salam said he did not accept the Senior Compliance Officer s finding that the Firm had not prepared adequate documentation to comply with ISA 230. He did not accept that there had been a material breach of PR13(1). He agreed that there were some deficiencies but said that these were not high risk. He told the Committee that he was currently looking at suitable training companies to cold review the files. DECISION ON FACTS 14. Mr Salam denied that he breached ISA 230. The Committee accepted the Legal Adviser s advice, and first decided whether ACCA had proved, on the balance of probabilities, that the ISA had been breached. 15. ISA 230 requires that the audit documentation must be sufficient to enable an experienced auditor, having no previous connection with the audit, to understand the nature, timing and extent of the audit procedures performed to comply with the ISAs and applicable legal and regulatory requirements. 16. The Committee had regard to paragraph 2.19 of the Report concerning audit evidence, where it describes and documents in some detail significant deficiencies in the extent and quality of audit evidence (ISA500). In four areas, the deficiencies concerned both audit files, and in another seven areas, deficiencies were found in one or other file. The Committee noted that in his evidence Mr Salam maintained that the audit work had been done. He accepted, however, that the main problem with his current standard of audit work was inadequate recording of the procedures followed and the documenting in his files of the evidence relied upon. This suggested
to the Committee that he accepted he had not properly recorded evidence in support of his audit conclusions, as set out in paragraph 2.19. 17. Having taken careful note of the evidence, the Committee could not reconcile Mr Salam s refusal to admit a breach of ISA 230 with the specific evidence he had provided about the shortcomings in his practice. The Committee noted that the Report particularised the absence of audit evidence in some detail at paragraph 2.19 of the Report. By contrast, in neither his written response to the Senior Compliance Officer s draft report, submitted on 30 September 2017, nor in his oral evidence at the hearing, had Mr Salam sought to provide specific rebuttal evidence to undermine ACCA s inspection findings. In his written response for File 1, he conceded that: valuation of stock and completeness of creditors and income not adequately addressed, areas covered in 2.19. In respect of File 2, he conceded the same shortcomings. Overall, he conceded that there are several weaknesses in the quality control and standard of work [ ] and [we] seek to rebuild our quality of audit work specially recoding (sic) of audit evidence and its presentation 18. Taking into account all of the evidence before it on this topic, the Committee was satisfied, on a balance of probabilities, that Mr Salam s audits had breached ISA 230. Where the audit evidence was not properly recorded, as set out in the ACCA Report and, to at least some extent, conceded by Mr Salam, another auditor who had no previous involvement with the audit, would not have been able to understand the nature, timing and extent of the audit procedures carried out by Mr Salam to comply with the standards. PRACTISING REGULATION 13(1) 19. The Committee next asked itself whether Mr Salam had committed a material breach of PR13(1). 20. Mr Salam accepted in his evidence that there were deficiencies in his audit work, but sought to maintain that they were nonetheless not serious. He also asserted that following his submission of the action plan to ACCA, he had not had sufficient time for improvements to be reflected in the conduct of the 2016 audits (which were the subject of the fourth monitoring visit).
21. The Committee considered whether it found Mr Salam s evidence on this timing issue to be credible. It considered the documentation carefully, and reminded itself that the chronology was as follows: Date Event 13 February 2015 Third monitoring visit 10 June 2015 Mr Salam delivered to ACCA three files in respect of the undisclosed audit client 17 June 2015 Audit files inspected by ACCA 8 December 2015 Outcome letter sent by ACCA to Mr Salam, raising serious concerns following third monitoring visit 31 March 2016 Mr Salam sent action plan in response to ACCA s letter of 8 December 2016 19 April 2016 ACCA wrote to Mr Salam informing him that documents will be forwarded to the Regulatory Assessor for regulatory action 2 November 2016 ACCA wrote to Mr Salam informing him that as he had completed a satisfactory action plan the matter would not be referred to the Regulatory Assessor, but that ACCA would carry out a further monitoring visit in early 2017 2 May 2017 Fourth monitoring visit 22. Mr Salam told the Committee that the year end dates for his two audit clients were 31 December and 31 January. He said he therefore had to file the audited company accounts for these clients by 30 September 2016 and 31 October 2016.
23. The Committee carefully considered the chronology, and bore in mind that the action plan was submitted to ACCA in March 2016, and not June 2016 as Mr Salam originally stated. It was also mindful that this action plan related to matters that were brought to Mr Salam s attention in a letter from ACCA dated 8 December 2015, in which concerns were raised following the third monitoring visit. Having taken these factors into account, the Committee decided that Mr Salam s evidence on this issue was not credible and the Committee did not accept it. He had been put on notice about the concerns with his audit work in December 2015, in good time before the audits which were the subject of the fourth monitoring visit were carried out. He submitted his action plan to ACCA approximately six months in advance of the completion of those audits, not three months, as he originally stated in his evidence. The plan itself had a consistent date of 12 January 2016 by which its various provisions were to be implemented, yet Mr Salam in evidence to the Committee could not explain why that date had been chosen by him or what actions he had taken to implement the plan, then or later. The Committee was satisfied that Mr Salam had had sufficient time in which to implement the necessary changes and improvements in his audit work, based on his knowledge of his previous audit failings and his action plan purportedly intended to remedy them, but had failed to do so. It also noted that he had made no representations to ACCA about the timing of the fourth visit when notified, in ACCA s letter of 2 November 2016, that it would take place in early 2017. This letter warned Mr Salam that the effectiveness of your action plan for improving the standard of audit work will be one of the factors considered at the visit. In the event, the visit took place well into 2017, some six months after the letter of notification. 24. In his written submission in September 2017, Mr Salam had claimed that for both audit clients there had been significant improvements found in his audit work but he provided no evidence thereof. In his oral evidence to the hearing, Mr Salam relied only upon improvements in his regulated work and again provided no evidence going to improvements in his audit practice. In the Committee s view, any progress in the regulated work was not relevant, as the concerns which brought Mr Salam before the Committee concerned serious deficiencies and a failure to improve his statutory audit work.
25. In neither his written responses nor in his evidence to the Committee, did Mr Salam provide any substantive evidence to rebut the serious deficiencies in his audit work which, together with the associated failure to comply with the relevant ISA, were set out in the Report. Indeed, in his written response to the draft of the Report, Mr Salam made no comment in relation to most of ACCA s findings. As noted above, Mr Salam sought to rely almost entirely on his regulatory work as evidence of his progress. He was in effect inviting the Committee to draw an inference that, since the May 2017 visit, he had improved his audit work in a similar manner. The Committee was clear that it could not properly draw any such inference in the absence of any evidence to support it. 26. The Committee thought it noteworthy that Mr Salam had not disputed the findings of the 2015 monitoring visit, nor that they were sufficiently serious to engage regulatory action (the initially proposed referral to the regulatory assessor). Further, it was a reasonable inference to draw that in producing an action plan to address the deficiencies in his audit practice, Mr Salam had at that time recognised that his shortcomings were indeed serious. In the Committee s view, it was relevant to take these considerations into account in evaluating the weight it could reasonably place on Mr Salam s view, now that the deficiencies found in the fourth visit, many of them replicating those found in the third visit, were no longer to be regarded as serious. 27. In summary, in the Committee s judgment Mr Salam had failed to provide any evidence, or advance any persuasive argument or analysis, calling into doubt the Report s analysis and conclusions. The Committee found that taken in the round, the Report documented a sufficient number and range of significant breaches of applicable ISAs to satisfy it that these were serious deficiencies, not just a small number of inadvertent or minor errors. Taken together, they constituted a material breach of PR13(1) such as to engage its regulatory powers under Authorisation Regulation 5(2)(f). DECISION ON REGULATORY ORDER 28. Having found that Mr Salam committed a material breach of PR13(1), the Committee then decided what order, if any, to impose.
29. In reaching its decision, the Committee took account of the GRO, and ACCA s Admissions and Licensing Committee Guidance, published 1 November 2017, ( the Guidance ). It bore in mind that in determining what order to impose, if any, it must act proportionately, balancing Mr Salam s interests against the purpose of regulatory orders. 30. The Committee found that it would be inappropriate, in the light of its finding that there was a material breach of PR13(1), to take no action. To do so would not protect the public or the wider public interest. 31. It next considered whether it would be able to formulate workable conditions to impose on the audit certificate, which would protect the public and maintain confidence in the accountancy profession. 32. The Committee considered Mr Salam s evidence on this issue. He told the Committee that he was proposing a business merger with a colleague, each being a 50% equity partner. He explained that this colleague, a chartered accountant, is experienced in audit work and will supervise his audit work in future. The Committee was also provided with a brief statement from this person, in which he set out his qualifications and experience, and confirmed that, we will conduct statutory and other audits in full compliance with International Standards on Auditing and other relevant industry guidelines. I also plan to introduce in house audit training sessions to complement external training. 33. The Committee was not, however, persuaded that Mr Salam s plans for rectifying his audit performance could be relied upon now given that they had not proved reliable in the past. The Committee had not heard directly from the proposed business partner. In any event, the Committee accepted Ms Hatt s submission that Mr Salam s fitness to hold an audit certificate was a matter for the Committee to determine on the basis of the evidence before it at the hearing, rather than relying upon any putative plans for the future. The Committee was not satisfied that this proposal would serve to protect the public and maintain confidence in the accountancy profession, nor had Mr Salam advanced any alternative proposal which would do so.
34. The Committee was also concerned about the extent of Mr Salam s insight into the generally poor standard of his and his firm s audit work. In the Committee s view, he has not demonstrated over time that he understands what is necessary to achieve and sustain the required auditing standards. The Committee was not, therefore, satisfied that workable conditions could be placed on the certificates, which would serve to protect the public and meet the wider public interest. 35. The Committee then considered whether to suspend or withdraw the audit certificates. It had regard to paragraph 8.2.6 of the GRO. This states that, Suspension of a certificate or licence until the occurrence of a specified event, or withdrawal of a certificate or licence, is appropriate where a firm or individual is unable to satisfy the Committee that the work will improve to a satisfactory standard within an acceptable period of time and that the improvements will be sustained in future. 36. The Committee also considered paragraph 8.2.8 of the GRO which sets out relevant factors to take into account. It was satisfied that two of these factors were applicable in this case. These were: The firm s or individual s work is generally of a poor standard, and The firm or individual has not shown over time that it is able or willing to achieve and sustain a satisfactory standard of work. 37. The Committee had found that there were material breaches of PR13(1). Mr Salam s audit work was (and had remained following the third visit) of a generally poor standard; he had breached a significant number of the auditing standards and had not made any improvements in his audit work between the third and fourth monitoring visits. The Committee had been provided with no evidence from him to persuade it that the standard of his audit work was likely to improve 38. The Committee was clear that suspending the audit certificate would not be an appropriate or proportionate order given Mr Salam s lack of insight into the need to improve his audit practice, and how this might be achieved,
beyond relying upon training and supervisory initiatives (such as cold reviews ) which he had failed to implement. 39. The only appropriate and proportionate order, which would protect the public and meet the wider public interest, was an order withdrawing Mr Salam s practising certificate with audit qualification, and the Firm s audit certificate. The Committee was satisfied that this order was the minimum necessary to protect the public and maintain confidence in the accountancy profession. 40. Having determined that Mr Salam s practising certificate with an audit qualification be withdrawn, the Committee directed ACCA to reissue Mr Salam with a practising certificate. EFFECTIVE DATE OF ORDER 41. Ms Hatt invited the Committee to make an immediate order in the public interest. Mr Berkin did not oppose ACCA s application. 42. The Committee decided that, in light of the reasons for its decision to withdraw the Firm s audit certificate and Mr Salam s audit qualification, and given its findings that such an order was necessary to protect the public and in the wider public interest, the order should take effect immediately in the interests of the public. PUBLICITY 43. Ms Hatt submitted that the order should be published by ACCA. She referred the Committee to Regulation 6 of the Statutory Auditors and Third Country Auditors Regulations 2016, which gives the Committee discretion not to name Mr Salam in specified circumstances. 44. Mr Berkin did not oppose the request for publicity and confirmed that he was unable to advance any argument to justify not naming Mr Salam in such publicity. 45. In these circumstances, the order will be published by ACCA in accordance with Authorisation Regulation 6(12)(c)(i).
John Crawley Chairman 4 December 2017