Guidance on ICAS Rules for CAs acting for UK charities

Guidance on ICAS Rules for CAs acting for UK charities A Guide from The Institute of Chartered Accountants of Scotland

Guidance on ICAS Rules for CAs acting for UK charities A Guide from The Institute of Chartered Accountants of Scotland

PUBLISHED IN MAY 2010 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SCOTLAND 2010 ISBN 978-1904574-68-2 EAN 9781904574682 This document is published by the Technical Policy Board of The Institute of Chartered Accountants of Scotland. The views expressed in this publication are those of the members of the Charities Committee and do not necessarily represent the views of the Council of The Institute. All rights reserved. This publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, with appropriate acknowledgement of the publisher. This Guide can be downloaded without charge from the Institute s website at: www.icas.org.uk/rulesguidecharities

Acknowledgements The members of the Institute s Charities Committee who took part in this initiative were: Adrienne Airlie Martin Aitken & Co Colin Burnett Moredun Foundation Bill Cormie Honorary treasurer and charity trustee for: The Tall Ships Youth Trust Skill: National Bureau for Students with Disabilities Bexley SNAP (Special Needs Access Provision) Gillian Donald (Convener) Scott-Moncrieff Kenneth Ferguson Aberlour Child Care Trust Iain Grimmond Church of Scotland Sarah Hollis Hollis Accounting Limited William Stewart William G A Stewart Lesley Watt National Trust for Scotland Christine Scott (Secretary) The Institute of Chartered Accountants of Scotland It should be noted that the members of the Committee were acting in their personal capacity and were not representing the organisations for which they work. Any enquiries should be addressed to Christine Scott, Assistant Director, Charities and Public Sector The Institute of Chartered Accountants of Scotland CA House, 21 Haymarket Yards Edinburgh EH12 5BH Email: accountingandauditing@icas.org.uk

Contents 1. Introduction...1 1.1 Aim of the guidance on ICAS Rules... 1 1.2 Scope of the guidance on ICAS Rules... 1 1.3 ICAS review of the regulatory framework... 1 2. The regulatory requirements...2 2.1 Overview... 2 2.2 Practice... 2 2.3 When does a CA need a practising certificate?... 2 2.4 Nominal fee (single or multiple engagements)... 3 2.5 Multiple engagements for no fee or nominal fee... 3 2.6 Scenarios for CAs involved with charities... 3 3. Professional indemnity insurance and related issues...5 3.1 PII and practising certificate holders... 5 3.2 PII and members who do not hold a practising certificate... 5 4. Regulated areas...6 4.1 Audit... 6 4.2 Insolvency... 6 4.3 Investment business... 6 4.4 Further information on regulated activities... 6 5. Continuing professional development...7 5.1 Mandatory continuing professional development... 7 5.2 CA Business courses... 7 5.3 Accounting and auditing technical query service... 7 Page v

Guidance on ICAS Rules for CAs acting for UK charities 1. Introduction 1.1 Aim of the guidance on ICAS Rules The Institute s Rules need to be adhered to by members. This guidance has been prepared to assist members to comply with the Institute s Rules when they provide accountancy services to charities whether they are remunerated for their services or act in a voluntary capacity. This guidance applies to all CAs providing accountancy services to UK charities. 1.2 Scope of the guidance on ICAS Rules The guidance does not repeat or cross-refer to all Institute Rules and Bye-laws which may apply to CAs acting for charities and it is not a substitute for the Rules themselves. The Institute s Rules and Bye-laws can be accessed through the Upholding Standards section of the ICAS website at: www.icas.org.uk/site/cms/contentchapterview.asp?chapter=607 The term accountancy services encompasses a wide variety of services which are provided by CAs to charities and other third parties, including, but not limited to: The preparation of management accounts or financial accounts External audit and assurance services Independent examination Providing tax advice 1.3 ICAS review of the regulatory framework The Institute is currently undertaking a new project to apply a principles-based approach to the Institute s regulatory material which is aimed at assisting members to uphold standards. Guidance will be produced which makes it clear to members which parts of the regulatory framework may be relevant to their own circumstances and the project also aims to reduce the length and complexity of the Institute s rules, to ensure that they are written as far as possible in plain English. Further details will be available on the ICAS website in due course. 1

Guidance on ICAS Rules for CAs acting for UK charities 2. The regulatory requirements 2.1 Overview It is expected that each Chartered Accountant will: conduct him or herself with integrity, honesty, objectivity and high ethical standards, have due regard to the public interest in his or her role as a CA, agree to abide by the Rules, Regulations and Code of Ethics, and give due consideration to the guidance and recommended good practice issued by the Institute. 2.2 Practice In terms of Rule 16 (of the Institute s Rules) members may not engage in practice in the EU unless they hold, or are specifically exempt from holding, a practising certificate. Under Rule 16, Council has the authority to make practice regulations; these delegate responsibility to the Practitioner Certification Committee (PCC) and state the basis on which practising certificates will be granted. Note that the grant of a practising certificate does not of itself convey any right to practice in the UK in the reserved areas of audit, insolvency, or investment business. Practice is the provision of services, including accounting and related services, to persons other than his or her employer for a fee, as defined in the ICAS Rules. Any queries about practising and practising certificates should be directed to the Professional Services Department on 0131 347 0286 or by email to: rrichardson@icas.org.uk The Practising Certificate Bye-laws are available in full on the ICAS website at: www.icas.org.uk/site/cms/contentviewarticle.asp?article=4884 2.3 When does a CA need a practising certificate? The PCC is responsible for deciding whether a member is in practice and needs a practising certificate; however, it rests with the member to make an initial consideration about whether to apply for a practising certificate. This section outlines the relevant regulatory requirements but it is not definitive; if a member is in any doubt he or she should contact the Institute s Professional Services Department. Taken together, there are two key features that point towards a member needing a practising certificate. These are: Is the member paid for providing accountancy or related services on his or her own account or through a legal entity in which the member has an ownership stake; and Does the member require Indemnity Insurance because he or she is liable for the work? The answer to these questions may be simple but for others further consideration may be required before reaching a decision. If the answer to these questions is yes it is probable that the member is in practice, requires a practising certificate, needs to comply with Professional Indemnity Insurance (PII) requirements and be within the Quality Review scheme. The Institute s Rules require any member in practice to have a practising certificate; practising without a practising certificate may result in disciplinary action. 2

Guidance on ICAS Rules for CAs acting for UK charities Members of the Institute who provide accountancy services (outwith the regulated areas of audit, insolvency and investment business) to charities, communal or sporting bodies, or to other similar bodies free of charge, or for a nominal fee, do not need to hold a practising certificate (Practising Certificate Bye-law 7). If any fee is charged for this work (other than what will be regarded as a nominal fee, and subject to there not being more than three appointments), the member will be regarded as engaging in practice, and will therefore be required to hold a practising certificate. Further details on the regulated areas of audit, insolvency and investment business are set out in section 4. 2.4 Nominal fee (single or multiple engagements) The Practising Certificate Bye-laws do not specify the maximum amount which can be charged for either a single engagement or a series of engagements before a member is considered to be in practice. However, if a member is to receive a fee in excess of 50 per engagement then it may be difficult to justify regarding the fee as nominal. A member who is in any doubt as to whether he or she requires a practising certificate should contact the Professional Services Department. 2.5 Multiple engagements for no fee or nominal fee The Practising Certificate Bye-laws do not specify the maximum number of engagements which can be undertaken free of charge, or undertaken for a nominal fee, before a member is considered to be in practice. However, the PCC takes the view that if a member is undertaking more than three engagements free of charge, or for a nominal fee, then he or she will be regarded as being in practice and will require a practising certificate. A member who provides accountancy services to a number of different charities entirely for free, or charges a nominal fee, and has any doubt as to whether he or she requires a practising certificate should contact the Professional Services Department. 2.6 Scenarios for CAs involved with charities Subject to Practising Certificate Bye-law 7: If a Chartered Accountant provides accountancy or related services to someone other than his or her employer and is paid for it, he or she is in practice. Working for someone on a sub-contract basis is considered to be employed and would not require a practising certificate. Sub-contract means that the firm for which the member is working assumes all the risk associated with the work in the same way as it would for its employees. A Chartered Accountant accepting work in his or her own name, or that of an entity of which he or she is a proprietor or partner, would be in practice. Examples of when a Chartered Accountant is, or is not, in practice are shown below. (i) A Chartered Accountant is a partner in an accountancy firm and is the engagement partner for the audit of a non company charity. A CA who is a partner in a firm requires a practising certificate. The firm will also need to be registered to undertake audit work. 3

Guidance on ICAS Rules for CAs acting for UK charities (ii) A Chartered Accountant is employed by an accountancy firm and is the Statutory Auditor for a charitable company. In general, an employee does not require a practising certificate; however, it is a requirement of the Audit Regulations that each Statutory Auditor has a practising certificate (Audit Regulation 4.02). The firm will also need to be registered to undertake audit work. (iii) A Chartered Accountant is an employee in a practice which undertakes insolvency work for both charitable companies and non-company charities. In general, an employee does not require a practising certificate but if a CA wishes to accept any insolvency appointment, including for the insolvent dissolution of a charity, in his or her name an Insolvency Permit is required. A requirement of the Insolvency Permit Bye-laws (Bye-law 14) is that the applicant holds a practising certificate. (iv) A Chartered Accountant has been asked to undertake an independent examination of a charity. A member, who provides an independent examination to a charity free of charge, or for a nominal fee, does not need to hold a practising certificate. If any fee is charged for this work (other than what would be regarded as a nominal fee), the member will be regarded as engaging in practice, and would therefore be required to hold a practising certificate. (v) A Chartered Accountant holds a practising certificate and is approached in a personal capacity to undertake the independent examination of a charity for no fee. A member in practice may be asked to provide an independent examination but in a personal capacity outwith his or her firm and for no fee. In this scenario, it is unlikely that the firm s PII cover would extend to voluntary work undertaken in a personal capacity. There is no requirement in this situation for the CA to carry professional indemnity insurance but he or she can purchase PII if they wish. (see 3.2 below). (vi) A Chartered Accountant is a volunteer at the Citizens Advice Bureau (or similar charity). The definition of being in practice includes being remunerated and so advice given in the capacity as a volunteer does not require a practising certificate. 4

Guidance on ICAS Rules for CAs acting for UK charities 3. Professional indemnity insurance and related issues This chapter highlights a number of issues surrounding professional indemnity insurance (PII). However, its main emphasis is on CAs who do not hold a practising certificate. 3.1 PII and practising certificate holders Practising certificate holders are required to have an adequate level of PII cover under the PII Byelaws. The PII Bye-laws are available in full on the ICAS website at: www.icas.org.uk/site/cms/contentviewarticle.asp?article=5424 3.2 PII and members who do not hold a practising certificate Non-practising members (or members who are acting outside the scope of their practising certificate) are not required to carry PII. However, CAs providing accountancy services to charities for no fee or for a nominal fee can purchase PII cover if they wish. The Professional Services Department can provide members with a list of participating insurers and brokers, although this list should not be considered exhaustive. Members should speak to a number of firms to establish what policies and premiums are available to them and obtain quotes prior to settling on an insurer/ broker. The Professional Services Department can be contacted on 0131 347 0286 or by email to: rrichardson@icas.org.uk Communication with the charity trustees Where members who do not have a practising certificate (or who are acting outside the scope of their practising certificate) are providing independent examination or other reporting services to charities on a voluntary basis, they should inform the trustees in writing if there is no PII in place. Sample wording for a CA informing trustees that he or she does not have a practising certificate and is not carrying PII As a non-practising member of the Institute of Chartered Accountants of Scotland (i.e. I do not require to hold a practising certificate under the Institute s Rules and Regulations, regarding the voluntary services that I am providing to you), I am required to inform you that there are no professional indemnity insurance arrangements in place regarding the voluntary services which I am providing to AN Charity. Sample wording for a CA, who has a practising certificate but who is acting in a personal capacity outside the scope of his or her practising certificate, informing trustees that there is no PII in place As a member of the Institute of Chartered Accountants of Scotland I do not require to hold a practising certificate under the Institute s Rules and Regulations regarding the voluntary services that I am providing to you in a personal capacity, I am required to inform you that there are no professional indemnity insurance arrangements in place regarding the voluntary services which I am providing to AN Charity. Signing the independent examiner s report Members who do not have a practising certificate should use the designatory letters CA when signing an independent examiner s report. 5

Guidance on ICAS Rules for CAs acting for UK charities 4. Regulated areas CAs can only undertake engagements in the following regulated areas with the appropriate registration or licensing: Audit Insolvency Investment business 4.1 Audit Only member firms registered with a recognised supervisory body, such as ICAS, to undertake audit work should undertake an audit of a charity. Charity audits should be undertaken in accordance with the UK Auditing Practices Board s auditing and ethical standards. This applies even where it is only the charity s founding document which requires the charity to have an audit. Where the charity is otherwise able to take advantage of audit exemption the charity s trustees may wish to consider amending the founding document so that an audit is no longer required. 4.2 Insolvency Insolvency Practitioners must be licensed by a recognised professional body, such as ICAS, before accepting any appointment to undertake insolvency work. 4.3 Investment business Members providing investment business services require either: a licence from the Institute to conduct exempt regulated activities, known as a designated professional body (DPB) license; or to be authorised by the Financial Services Authority to conduct regulated activities. Further information on the provision of investment business advice, such as when a DPB license or FSA authorisation is required, can be obtained from the Professional Services Department by email at: professionalservices@icas.org.uk 4.4 Further information on regulated activities Further information on the regulation of audit work, insolvency work and the licensing of investment business activities is available on the ICAS website at: www.icas.org.uk/site/cms/contentcategoryview.asp?category=4100 6

Guidance on ICAS Rules for CAs acting for UK charities 5. Continuing professional development 5.1 Mandatory continuing professional development ICAS members are subject to mandatory continuing professional development (CPD) unless they are fully retired. Members assisting charities as volunteers will need to undertake CPD activities in order to keep up to date with developments in the charity sector, including changes in legislation, regulatory requirements and accounting issues. Fully retired members Members are considered fully retired when they are not carrying out any professional work (paid or unpaid) which calls on their financial or business expertise. Fully retired members are not required to undertake CPD. However, retired members who carry out part-time or voluntary work which calls on their financial or business expertise are expected to comply with CPD requirements and to undertake CPD activities relevant to the work they are undertaking. For example, a CA who is a charity trustee or independent examiner will need to undertake CPD activities in order to keep up with developments in the sector relevant to his or her role. ICAS guidance on CPD Guidance notes advising members of the support available for professional development are available on the website at: www.icas.org.uk/cpd Alternatively, contact the Professional Services Department on 0131 347 0230 or by email to: cpd@icas.org.uk 5.2 CA business courses The Institute s CA Business Courses Department runs charity accounting and auditing update courses on a regular basis and holds a charities conference each year. In light of the Institute s requirements, it is advisable that members specialising in this sector consider attending such courses. The online course directory can be accessed from the homepage of the ICAS website at: www.icas.org.uk Course enquires should be directed to: cabusinesscourses@icas.org.uk. 5.3 Accounting and auditing technical query service The Accounting and Auditing Department within the Institute provides a technical query service. Further information on the service is available on the ICAS website at: www.icas.org.uk/site/cms/contentcategoryview.asp?category=230 Technical queries should be emailed to: accountingandauditing@icas.org.uk. 7

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SCOTLAND CA House 21 Haymarket Yards, Edinburgh EH12 5BH TEL: 0131 347 0240 FAX: 0131 347 0114 E-MAIL: accountingandauditing@icas.org.uk WEB: www.icas.org.uk