building a legacy firm - johnstoncarmichael.com...johnston carmichael llp transparency report6 ya 31...

Johnston Carmichael LLP

Transparency Report

Year ended 31 May 2018

Building a Legacy Firm

2 Johnston Carmichael LLP Transparency Report | Year ended 31 May 2018

Contents

1. Introduction .............................................................................................................................................3

2. About Johnston Carmichael ................................................................................................................4

3. Legal structure and ownership ...........................................................................................................6

Legal structure ......................................................................................................................................................6

Ownership ..............................................................................................................................................................6

Locations .................................................................................................................................................................6

Regulation...............................................................................................................................................................7

4. PKF International Network...................................................................................................................8

Introduction ...........................................................................................................................................................8

Legal basis ..............................................................................................................................................................8

Key elements of the licensee agreements..................................................................................................8

Structure, committees and relationships between them ......................................................................9

The boards or committees’ functions ..........................................................................................................9

Quality assurance ...............................................................................................................................................10

Memberfirms,countriesandturnover(includingnumberofofficesandemployees) ...........10

Membership of the Forum of Firms ...........................................................................................................10

5. Governance ............................................................................................................................................ 11

6. Quality control ...................................................................................................................................... 12

i.Leadershipandresponsibilitiesforqualitywithinthefirm ............................................................. 12

ii.Relevantethicalrequirements .................................................................................................................. 12

iii.Acceptanceandcontinuanceofclientrelationshipsandspecificengagements ................. 12

iv.Humanresources .......................................................................................................................................... 13

v.Engagementperformance ......................................................................................................................... 13

vi.See‘Monitoring’sectionbelow. .............................................................................................................. 13

7. Monitoring .............................................................................................................................................. 14

8. Public Interest Entities ........................................................................................................................ 15

9. Independence procedures ................................................................................................................. 15

10. Learning and development ................................................................................................................ 16

11. Financial Information (Group) ........................................................................................................... 17

12. Partner remuneration and equity ownership ................................................................................. 17


1. Introduction

SinceourformationinMorayin1936,JohnstonCarmichaelhasbeencommittedtogrowingandinvestinginthecapabilityandsuccessofourfirmandourpeople.Wetakealongtermviewofourbusinessandknowthatourcommitmenttobuildingalegacybusinesswhichfuturegenerationscanenjoy,requiresustokeepevolvingandimprovingtomeetthechanginganddynamiclandscapeweoperatein.

Wefirmlybelievethattobuildasustainablebusinessofbenefittoourclients,ourpeopleandwidersociety,thenwemustensurethateverythingwedoisconsistentwithsoundcorevaluesandthehigheststandardofprofessionalandethicalpractice.Oneofourcorevaluesis“doingtherightthing”andthisgoesrighttothecore of who we are and to ensure that we follow the highest standards in all that we do.

In assessing the performance of our leaders in the business, the Policy Board monitors adherence to our corevaluesandtakescompliancewithethicalandprofessionalbehaviourveryseriously.Weknowthatourpeopleandourclientswanttoworkwithandbeassociatedwithafirmthatfollowsthehighestprofessionalandethicalstandards.WearecommittedtoachievingthatnotjustforourfirmbutalsotoplayourpartinsupportingtheimportantworkthatICASdoesinregulatingandsupportingthedevelopmentofourprofession.

Theyearto31May2018sawpositiveandexcitingprogressaswehavecontinuedtoinvestinimprovingtheefficiencyofthecoreprocessesinourbusiness,embracingnewtechnologies,strengtheningthebreadthanddepthofourservicecapabilityandinthelearninganddevelopmentofourpeople.

Webelievethatourbrandcontinuestogetstrongerthroughcontinuallydemonstratingourprofessionalcapability,ourapproachtoourworkandalsothroughourgrowinginternationalreachthroughourmembership of PKF International.

Iconfirm,onbehalfofthePolicyBoard,that:

• ourinternalqualitycontrolsystemsarefunctioningeffectively;

• ourindependencepracticesareappropriateandhavebeensubjecttoaninternalcompliancereview;and

• wehavepoliciesandproceduresinplacetoensurethatthecontinuingeducationofstatutoryauditorsisasrequiredbyrelevantlaw,regulationandprofessionalstandards.

WebelievestronglythatasaleadingfirmofCharteredAccountantsandBusinessAdvisers,wehavean important role to play in helping build a stronger economy and society. To do this means constantly improvingandinvestinginourownbusinesssothatwehaveaneverstrongerplatformtogrowourbusinessandindoingthatcreatenotonlyexcellentcareeropportunitiesforourpeople,butalsogrowourcontribution to our economy and society.

WearepleasedtopresentourTransparencyReportthathasbeenpreparedinaccordancewiththerequirementsofArticle13fromRegulation(EU)No537/2014andtheamendedDirective2014/56/EUoftheEuropeanParliamentandoftheCouncil.Thisreportcoverstheyearended31May2018andhasbeendesignedtohelpexplainwhoweare,theownershipandgovernanceofthefirmandthepoliciesandprocedureswehaveinplacetomaintainourindependenceandensurethatwecomplywithallapplicableauditandethicalstandardstodeliverhighqualityservicesinallareas.

Sandy Manson on behalf of the Board


2. About Johnston Carmichael

JohnstonCarmichaelisScotland’slargestindependentfirmofChartedAccountantsandBusinessAdvisersandweareoneoftheUK’stop20accountancyfirms.Sincethefirmwasformedin1936,wehavegrowntojustunder700staffand54partnersover11offices.Aspartofourcontinuedgrowthstrategy,ourpartnernumbersincreasedto56on1June2018.

Ourservicesinclude:

Our services

Business Solutions

Audit & Assurance

Corporate Finance

JC Wealth

Tax

BusinessAdvisory

Employer Solutions

Consulting

Restructuring

Providing organisations of all sizes with assurance over their financial performance Providing accounting

support to enable clients to focus on running their business

Assisting clients in buying & selling businesses, raising finance & providing business planning support

Delivering practical, commercially-focused employer solutions which ease the burden on our clients

Helping clients with change projects that deliver results which have significant, measurable impact on their business performance

Helping businesses & individuals when something fundamental has to change, often to help them cope with financial distress

Delivering proactive and innovative tax solutions for individuals and businesses

Helping clients plan for the future they want by providing independent financial planning advice

Delivering a one-stop-shop integrated service that takes care of our clients needs


Ourindustryexperiencespans14sectors:

Wealsobelievestronglyingivingbacktothecommunitiesweserve.Annually,staffinour11officessuggestandvoteonwhichlocalcharitytochampion,enhancingcommunitiesthroughoutScotland.Thediverserangeofcharitiescoverssupportandadviceservicesforpeoplestrugglingwithmentalillness,palliativecareandsupportandaholidayretreatforfamilieswithchildrensufferingfromcancer.Furtherdetailscanbefoundathttps://johnstoncarmichael.com/about-us/corporate-social-responsibility

Financial Services

Agriculture

Tech & Life Sciences

Hospitality & Leisure

Medical & Healthcare

Third Sector

Engineering & Manufacturing

Food & Drink

Landed Estates

Professional Services

Construction & Property

Fishing

Infrastructure & Renewable Energy

Oil & Gas

https://johnstoncarmichael.com/about-us/corporate-social-responsibility

https://johnstoncarmichael.com/about-us/corporate-social-responsibility


3. Legal structure and ownership

Legal structure

Johnston Carmichael is the trading name of Johnston Carmichael LLP, a Limited Liability PartnershipregisteredinScotland(SO303232).TheregisteredofficeisatBishop’sCourt,29Albyn Place, Aberdeen AB10 1YL.

Ownership

JohnstonCarmichaelLLP(thefirm)isownedon1June2018byits48equitypartners.

Theterm“Partner”,usedinrelationtotheLLP,referstoamemberofJohnstonCarmichaelLLP.AlistofthemembersofJohnstonCarmichaelLLPisavailableforinspectionatouroffices.

JohnstonCarmichaelLLPhastwoactivesubsidiarycompanies:

• JohnstonCarmichaelWealthLimitedwhichprovidesfinancialplanningadvice.

• JohnstonCarmichael(Scotland)Limitedwhichprovidesbookkeepingandpayrollservicesaswellasservicestogroupcompanies.

Locations11 Offices Throughout Scotland

Aberdeen

Edinburgh

Elgin

Forfar

Fraserburgh

Glasgow

Huntly

Inverness

Inverurie

Perth

Stirling


Regulation

JohnstonCarmichaelisregisteredtocarryonauditworkintheUKandRepublicofIrelandandregulatedforarangeofinvestmentbusinessactivitiesbytheInstituteofCharteredAccountantsofScotland(ICAS).Detailsaboutourauditregistrationcanbeviewedatwww.auditregister.org.uk,underreferencenumber0274andwww.cro.ie/auditorsunderreferencenumberAS0274.DetailsoftheprofessionalrulescanbefoundintheFRC’sEthicalStandard,InternationalStandardsonAuditing(UK),PracticeNotes,BulletinsandtheCompaniesAct2006.

JohnstonCarmichaelisalsolicensedbyICAS,aDesignatedProfessionalBody(DPB),tocarryoutarangeofinvestmentbusinessactivities.Howeverthereareotheractivitieswhichthefirmis not authorised to carry out.

OurinsolvencypractitionersarelicensedtoactintheUKbytheInstituteofCharteredAccountantsofScotland.DetailsoftheInsolvencyPractitionerDirectorycanbefoundathttps://www.insolvencydirect.bis.gov.uk/fip1/.DetailsofandaccesstotheprofessionalrulescanbefoundintheInsolvencyPermitRegulations;StatementsofInsolvencyPractice(SIPS);andtheICAScodeofethicsPartD:InsolvencyPractitioners.

JohnstonCarmichaelWealthLimitedisauthorisedandregulatedbytheFinancialConductAuthority(FCA)underreferencenumber114322

http://www.auditregister.org.uk

http://www.auditregister.org.uk

http://www.cro.ie/auditors

https://www.insolvencydirect.bis.gov.uk/fip1/


4. PKF International Network

Introduction

WeareproudtobetheScottishmemberfirmofthePKFInternational(PKFI)familyoflegallyindependentfirms.PKFIconsistsofmemberfirmsinlocationsaroundtheworld,providingassurance,accountingandbusinessadvisoryservices.ThenetworkisamemberoftheForumofFirms–anorganisationdedicatedtoconsistentandhigh-qualitystandardsoffinancialreportingand auditing practices worldwide.

ThefirmdoesnotacceptanyresponsibilityorliabilityforactionsorinactionsonthepartofanyotherindividualfirmorfirmswithinPKFI.

Legal basis

ThenetworkformedbyPKFInternationalLimited(theLicensorortheCompany)andthememberfirms(theLicensees)isregulatedbyadherencetoanOperatingLicenceAgreement(OLA)betweentheLicensorandindividualLicensees.TheOLAauthorisestheLicenseetousethePKFnameasdefinedunderspecificcircumstances,underspecificconditions,forspecificpurposesandinaspecificterritory,inconsiderationforwhichtheLicenseepaysalicencefeetotheLicensor.PKFInternationalLimitedadministersthisnetworkoflegallyindependentfirmsanddoesnotprovideprofessionalservicesinitsownright.

TheLicensorisaprivatecompanyregisteredinEnglandandlimitedbyguarantee.TheCompany’sArticlesofAssociationrequireaBoardofDirectorswhoconductthebusinessoftheCompany.TheBoardhasastrategicandco-ordinatingrolebuthasnoexecutiveauthorityoftheoperationsofindividualmemberfirms.

EachLicenseeisalegallyindependententityownedandmanagedineachlocation.Contractualrelationsareonlyformedbetweenaclientandthememberfirmengagedbytheclientandnoothermemberfirmmaybeheldliable.TheCompanyhasnofinancialormanagementinterestinanymemberfirm.NoneofthedirectorsoftheCompanyhasafinancialormanagementinterestinanymemberfirmotherthanhisorherown.

Key elements of the licensee agreements

ThebasicmembershiprequirementsapplicabletomembersofthePKFInetworkarecontainedwithintheOperatingLicenceAgreement(OLA)whicheachmemberfirmentersintowithPKFInternationalLimited,andtheInternationalProfessionalStandardsManual(IPSM)withwhichallmemberfirmsarerequiredtobecompliant.

ManyprovisionsoftheOLAandIPSMarecoveredthroughoutthissectionoftheTransparencyReport.

Membersfirmsarerequiredtoimplementasystemofinternalmonitoringandqualitycontrolassessmentforallpracticeareasacrossthewholefirm.Forassuranceandrelatedservices,thequalitycontrolsystemneedstocomplywithInternationalStandardsonQuality1(ISQC1).Theoverallobjectiveoftheserequirementsistoensurethateachmemberfirm’ssystemofqualitycontrolprovidesreasonableassurancethatboththeyandtheirpersonnelcomplywith professional standards and applicable regulatory and legal requirements, and that reports issuedbythememberfirmareappropriate.


MemberfirmsarerequiredtosubmitanannualMemberFirmComplianceReporttoPKFI,aswellasanannualFirmProfileReport,consistingofrevenueandotherstatistics.

AttheheartofPKFI’sapproachtomanagingindependenceistheTransnationalEntitiesDatabase(TREND),partofthenetwork’sproprietaryplatformforglobalco-ordinationandcommunication.Asecurecentralrepositoryofmemberfirms’transnationalclientdetailsaccessiblebyallPKFfirmsworldwide,thedatabasehighlightspotentialcross-borderconflictsinvolvingPKFIfirms.Thetransnationalentitylisting(includingtransnationalaudits)mustbecontinuouslyupdatedanditsaccuracyconfirmedannually.

Structure, committees and relationships between them

Memberfirmsareorganisedintofivegeographicalregions.Eachregionhasaregionalboardandelectsornominatesrepresentative(s)tothecompany’sboardofdirectors.Theboardofdirectorsarenominatedbythevariousregionsintheworld.EachregionhasaRegionalBoard. The chairman of the Regional Board is normally a member of the International Board. TheInternationalBoardmeetsfourtimesayear;RegionalBoardsmeeteitherinpersonorbyconference call as required.

There are two international committees responsible for professional and practice standards –theInternationalProfessionalStandardsCommittee(includingAssurance)(IPSC)andInternationalTaxCommittee(ITC).TheIPSCmeetstwiceayearinpersonwithperiodicconferencecalls;theITCmeetsinpersonatleastannuallywithperiodicconferencecalls.EachregionisrepresentedonthesecommitteeswhoreportintotheInternationalBoardona regular basis. A number of additional practice area committees operate both regionally and internationally.

TheglobalCEOisappointedbytheInternationalBoardandreportstotheinternationalchairmanandtheInternationalBoard.RegionalDirectorsinchargeofeachregionareappointedbytheglobalCEOinconsultationwiththeReginalBoards.Committeemembersareselectedaccordingtotheirtechnicalexpertiseandpossiblecontributionandtoensurethateachregionis represented.

PKFIpresentsanannualGlobalGatheringforallmemberfirmsandanannualInternationalAssuranceMeetingandInternationalTaxMeeting.Eachregionhasitsownmeetingtoaddressmatters of regional interest.

The boards or committees’ functions

TheInternationalProfessionalStandardsCommittee’s(IPSC)principalobjectivesencompassthreefocusareas:

1. Qualityassurance(seealsoQualityAssurancebelow)

a.Establishandcommunicategeneralpracticestandardsandstandardsfortheperformanceofcertaintypesofprofessionalworkbymemberfirms;and

b.Monitorthegeneralpracticestandardsandqualityofworkofmemberfirms.

2.Memberfirmsupport–AssuranceandAccounting

a.Maintainpracticeaids,includingsoftware,manualsandtemplates;and

b.Makeavailabletrainingmaterialandarrangerelevantmeetingandtrainingsessions.


3.GlobalregulationofPKFInetwork

a.Monitorregulatoryandlegaldevelopmentsaswellaslitigationandenforcementactionsrelevanttointernationalnetworksanditsimplicationsforthenetworkandmemberfirms;and

b.Contributetointernationaldevelopmentsanddebatesrelevanttotheprofessionandaccountingnetworks.

TheInternationalTaxCommitteeco-ordinatespublicationofthePKFWorldwideTaxGuideandanumberoftechnicalnewsletters,arrangestheannualInternationalTaxMeeting,andfacilitatesresourcesharingamongmemberfirms.

Quality assurance

PKFIoperatesaglobalmonitoringprogramcoveringmemberfirms.Theprincipalobjectivesaretoensurethatthestandardsexpectedfortheperformanceofcertaintypesofprofessionalworkbymemberfirmsareestablishedandcommunicatedtofirms,thatthosestandardsmeet appropriate recognised professional practice requirements at least for transnational and referredwork,andthataprogramofmonitoringofcompliancewithexpectedstandardsisoperatingeffectively.

Member firms, countries and turnover (including number of offices and employees)

PKFIdistinguishesbetweenmemberfirmsandexclusive/non-exclusivecorrespondentfirms.

CorrespondentfirmsdonotformpartofthenetworkasdefinedbytheCodeofEthicsforProfessionalAccountantsissuedbytheInternationalEthicsStandardsBoardforAccountants(IESBA),havenoneoftherightsandprivilegesorresponsibilitiesofmemberfirmsandarenotcoveredbytheglobalmonitoringprogram.Anuptodatelistofmemberandcorrespondentfirms,includingthefirmnamesandcountriesinwhichtheyareregisteredandoperatefrom,canbe found on the website www.pkf.com.

The aggregate fee income which relates to the statutory audit of annual and consolidated financialstatementsforEUEEAmemberfirmsthatbelongtothePKFInetwork,asreportedintheFirmComplianceReporting30June2017,isUS$143.83million.

ThePKFInternational(PKFI)networkconsistsofmemberfirmsandcorrespondentsinover400locationsoperatingin150countriesacrossfiveregions,providingassurance,accounting,taxandbusinessadvisorysolutions.PKFImemberfirmshave£0.914billion(US$1.187billion,€1.041billion)inaggregatefeeincomeandapproximately16,700employees(yearendJune2017).

Membership of the Forum of Firms

PKFInternationalisamemberoftheForumofFirms(theForum)whichwasformallyestablishedin2002asanassociationofinternationalnetworksofaccountingfirmsthatperformtransnationalaudits.TheobjectiveoftheForumistopromoteconsistentandhigh-qualitystandardsoffinancialreportingandauditingpracticesworldwide.TheForumbringstogetherfirmsthatperformtransnationalauditsandinvolvesthemmorecloselywiththeactivitiesoftheInternationalFederationofAccountants(IFAC)inauditandotherassurance-relatedareas.Currently the Forum has 27 members. For more information see http://www.ifac.org/about-ifac/forum-firms-and-transnational-auditors-committee.

http://www.pkf.com

http://www.ifac.org/about-ifac/forum-firms-and-transnational-auditors-committee

http://www.ifac.org/about-ifac/forum-firms-and-transnational-auditors-committee


5. Governance

ThePolicyBoardareresponsiblefortheoverallstrategicdirectionofJohnstonCarmichael.MembersoftheBoardareappointedbyapprovalofthepartnergroup.

TheBoardmeetsregularlytodiscussandreviewprogresswiththefirm’sstrategyandaddressoperationalissuesinthefirm.

Asat31May2018,theBoardcomprisedof:

• AndrewShepherd(Chairman)

• AlexanderManson(ChiefExecutive)

• MarkHouston

• Craig MacPherson

• AlexanderRennie

• AndrewWalker

ThecompositionoftheBoardisreviewedperiodicallyandsuccessionplanningforboththeBoardandallkeyleadershippositionsinthefirmisregularlyreviewed.

InadditiontotheBoard,thefirm’sleadershipandgovernancestructureincludestheappointmentofBusinessLineHeads,OfficeManagingPartnersandExecutiveTeamHeads.

Thefirmencouragesacultureofcollaborationtoensurethatweoperateasonefirmandcaptureandutilisethebestcapabilityavailableacrossthefirmtoaddressclientandthefirm’sneeds.

Thefirm’ssubsidiariesarecorporateentitiesandcertainpartnersaredirectorsofthesecompanies to represent the members of the partnership.


6. Quality control

ThefirmcomplieswiththeInternationalStandardonQualityControl1(ISQC1)andthesixkeyelements contained within in it.

i. Leadershipandresponsibilitiesforqualitywithinthefirm

Responsibility for ensuring that the Firm complies with all regulatory requirements, that appropriatepoliciesareinplaceforallservicestoensurethatworkundertakentoasatisfactorystandardwithinthefirmlieswiththeChiefExecutive,AlexanderManson.

Anumberofpartnershaverolestoassistwiththisresponsibilityincluding:

• Audit Compliance Partner

• EthicsPartner

• MoneyLaunderingReportingOfficer

Allofourpoliciesarepublishedonourintranet,TheHub.Allofourpoliciesareavailabletoallofourstaffmembers,irrespectiveofthebusinesslinetheyworkin.

ii. Relevantethicalrequirements

Thefirm’sEthicsPolicyrequiresallmembersofstafftocomplywiththeICASCodeofEthics.Partnersandstaffareexpectedtoconsiderthequestionoftheirindependenceatalltimesandinparticularpriortocommencementofanyworkonanauditclient.Afinancialinterest in an audit client is prohibited.

Incasesofdoubtorwhereourindependence,integrityandobjectivitydo,ormightbeperceivedtoarise,theFirm’sEthicsPartner(forauditassignments)orChiefExecutive(fornon-auditassignments)mustbealertedassoonaspossibleandtheappropriateactiontaken.

Everyoneinthefirmisrequiredtoconfirmannuallythattherearenoindependenceissuesthatoughttobeaddressed.ThisisachievedbycompletionoftheindependencedeclarationquestionnairethattheEthicsPartnercirculates.

AllstaffarerequiredtonotifytheEthicsPartnerofanydirectorshipsorsimilarofficestheyhold.

iii. Acceptanceandcontinuanceofclientrelationshipsandspecificengagements

ThefirmhasadetailedClientTakeOnprocessthatmustbefollowedbeforeacceptinganewclient.Theprocedureshavebeendesignedtoensurethatallstafffollowthecorrectprocessesforclientidentification,independence/conflictassessments,thatstaffallocatedtotheassignmenthavetherelevantskills/specialistknowledgetoperformtheirrolesandthattheriskofacceptingtheengagementisdeemedacceptable.

Fornewauditclients,theAuditRiskCommittee,actingonbehalfoftheHeadofAuditapprovetheclientappointment.Aclientriskassessmentmemorequirestheteamtoconsidertheindividualriskstheassignmentpose,suchassignificantjudgementalaccountingaswellastherisktoourFirm,includinganypotentialreputationalrisks.TheAuditRiskCommitteereviewthememo,obtainingadditionalinformationbeforeapprovingour appointment.


Conflictandindependencechecksareundertakenbeforetheclientcanbeaccepted.ForauditclientswithaninternationalpresenceinadditiontoPublicInterestEntities(PIEs)andlistedcompanies,ourconflictcheckswillextendacrossthePKFNetwork.

Oncethefirmhasacceptedthenewclient,oranewengagementfromanexistingclient,anEngagementletterisissuedwhichcontainsourstandardtermsandconditions,adescriptionofourunderstandingoftheengagementandwhatisrequiredofus.Workdoesnotcommenceuntiltheclienthasreturnedasignedengagementlettertousorhasconfirmedtheiracceptanceofthespecifiedtermsandconditions.

iv. Humanresources

Thefirmhasestablishedpoliciesandproceduresthatenableallofthepartnersandstafftodeveloptheappropriatecompetencies,capabilitiesandtechnicalskillstocarryouttheirrolewithinthefirm.Allpoliciesandproceduresaredevelopedwiththerelevantprofessionalstandards and legal and regularly requirements in mind and are designed to ensure that the firmcontinuestodeliverhighqualityworkinallareas.

v. Engagementperformance

TheTechnicalDepartmentisresponsibleformonitoringthefirm’sauditengagementperformance and ensuring that the proprietary audit programmes are followed.

Aclearreviewhierarchyisinplaceforallauditassignments.PolicieshavebeenestablishedwhichclearlydefinewhenanauditassignmentisrequiredtobereviewedbyanotherRI.Allofour2ndRIreviewersareapprovedbytheHeadofAudit.New2ndRIreviewersaresupportedinthisrolebytheHeadofAudit.Technicalreviews,focusingonkeyelementsofthefinancialstatements,arealsoincludedinourpoliciesandprocedures.

Allnecessarypoliciesandproceduresareavailabletoallstaffandregulartrainingandfeedbackisprovided.

vi. See‘Monitoring’sectiononthefollowingpage.


7. Monitoring

QualitycontrolismonitoredbytheTechnicalDepartment,supportedbypartnerswithspecialistindustryknowledgeandexperienceonarisk-basedapproach.Acyclicalapproachtoourinternalqualitycontrolreviewsisusedtoensurethatallthefirm’sspecialistssectorsandResponsibleIndividuals(RIs)aresubjecttoreviewatleastonceeverytwoyears.Thecycleisacceleratedwhentherearesignificantchangestoaccounting,auditingandotherregulatoryrequirements.ReviewsarealsoacceleratedwhenanRI’sauditfileisidentifiedasnotmeetingthe required standard.

Ourinternalreviewsaremarkedoutof10,with3marksallocatedtoplanning,4tofieldworkand3tocompletion.Marksaredeductedfordefectsidentifiedinthefile.Ourbenchmarkauditfilewouldhaveafewminordefectsinplanning,fieldworkandcompletionandobtainamarkof2,3and2ineachsectionrespectively.Anauditfilefailstomeetourrequiredqualitystandardifitsscoreinanyofthesectionsis1.5orbelowinplanning,2.5orbelowinfieldworkor1.5orbelowin completion.

Thereviewsaredesignedtoensurethatallrelevantstandardsarebeingmet,thatallstaffmembersaremaintainingtheirknowledge,professionalskillsandvaluesatasufficientlyhighlevelandthatanypotentialissuesareidentifiedearlyonandthenadequatelyaddressed.TheinternalreviewsalsoincludeareviewoftheindependencepracticesoneachfileandtheindependenceproceduresfortheFirmarealsoconsideredaspartofthewholefirmreview.

AreportisprovidedtoeachRI,detailingthekeyfindingsoftheirreview.Asummaryofthekeyfindingsofallourinternalreviewsaresharedwiththeauditteamsonanannualbasisandfirm-wideinternaltrainingcoursesprovideclarificationandreinforcetheFirm’scommitmenttoauditquality.

Inadditiontothecompliancereviewsofauditfiles,theAuditCompliancePartner,isresponsibleforensuringthattheannualWholeFirmComplianceReviewhasbeencompletedandallrecommendationshavebeenactioned.

Thefirmisalsoregulatedbytwoexternalregulators,theFinancialReportingCouncil’sAuditQualityReview(AQR)teamandICASforallotherauditassignments.ThereiscurrentlyanICASreviewunderway(thelastwasin2012)andweanticipateourfirstAQRreviewtooccurinthenextfivetosixyears.

AsarequirementofourinternationalnetworkmembershipofPKFIwemustcomplywithISQC1. PKFI operates a global monitoring programme to ensure that the required standard is being met.WearealsorequiredtosubmitanannualMemberFirmComplianceReporttoPKFI.


8. Public Interest Entities

Duringtheyearto31May2018,thefirmexpressedanopiniononthefinancialstatementsofDiscoveryEducationplc,anentitythatcurrentlymeetsthedefinitionofaPublicInterestEntity(PIE).WehavealsobeenappointedasauditorstoSummitHealthcare(Wishaw)plcandwillexpressourauditopinionintheyearto31May2019.

9. Independence procedures

Thefirm’spartnersandstaff(includingconsultantsandsub-contractors)arerequiredtobeawareof,andcomplywith,theICASCodeofEthicsguidanceonindependenceandtheFRC’sEthicalStandard.Thefirmconsidersindependenceundertwoheadings:theIndividualandtheAssignment.

Everyoneinthefirmisrequiredtoconfirmannuallythattheyhavenoindependenceissuesthatneedtobeaddressed.Wherethereareindependenceissues,theAuditEthicsPartnerisinformedandappropriateactionagreedandundertaken.

Thefirm’sauditmethodologyalsorequirestheassignmentteams’andthefirm’sindependence,integrityandobjectivityisassessedattheplanningandcompletionstages.Thisalsoincludestheconsiderationofanynon-auditservicesthatthefirmmaybeprovidingtoanauditclient.

AsaPKFmemberfirm,wealsoupdatetheTransnationalEntitiesDatabase(TREND)withthedetailsofallourtransnationalclients.ThisisaccessibletoallPKFfirmsandisusedtohelpensure we do not encounter independence issues.

Our rotation policy, compliant with current regulations, ensures that the audit assignment teamsonourPIEandlistedauditswillremainindependent.Keyteammembers,includingthe assignment manager, are required to rotate. Our aim to promote audit quality would not intentionallyrotateboththeRI,EngagementQualityControlReviewerormanagerinthesamereportingperiod.AcentrallogofperiodsofinvolvementismaintainedforallofourPIEandlistedaudits,highlightingwhenrotationswilloccur.Approximatelytwoyearsbeforearotationisrequiredtooccur,potentialreplacementsforkeyteammembersareidentified.Anytrainingneedsareidentifiedandresolvedbeforetheirinvolvementwiththeassignmentcommences.Forourotherclients,longassociationindependencethreatismitigatedbyanethicsreviewbeingundertakenbyanotherRI,appointedbyourCoreAuditteam.


10. Learning and development

AllmembersoftheAuditBusinessLinearerequiredtocomplywithallthefirm’spoliciesandprocedures,includingcontinuingprofessionaldevelopment(CPD).OurLearningandDevelopmentteamareresponsibleforensuringthatrelevantstaffareontracktomeetthefirm’sminimumCPDrequirementsforanyspecialistsectorsaswellasgenerally,reportingexpectedshortfallstotheAuditCompliancePartner.Staffarerequiredtoexplainhowanyprojectedshortfallwillberesolved.TheHumanResourcesteamoverseethefirm’srecruitment,appraisalandtrainingprocessestoensurethatallstaffareoperatingattherequiredlevelandaredevelopingandmaintainingtherightskillsforourclients.OurinternaltrainingensuresthatallRIsmeettherequirementsofInternationalEducationStandard8.

The transition to signing audit reports is not easy. Recognising that new RIs require additional support,thefirmhasimplementedapolicythatalloftheirfilesaresubjecttoaninternalreviewpriortotheauditreportbeingsigned.ThesereviewscontinueuntiltheAuditCompliancePartnerdeterminesthefilesaremeetingtherequiredstandard.

Ourtrainingprogrammeincludesbothinternalandexternalcoursescoveringdevelopmentsinaccountingandauditingstandards,companylaw,pensionsactandotherlegislation/regulationsrelevanttoourclients,taxation,ethics,anti-moneylaundering,briberyandcorruption,GeneralDataProtectionRegulationsandcareerspecificsoftskills.Staffwhoareundertakingworkinspecialistsectorssuchascharitiesandfinancialservicesalsoreceivetechnicalbasedtraininginthose areas.

TheTechnicalDepartmentproducemonthlyemailupdatescoveringanyrecentdevelopmentsinaccounting,auditing,companylawetc.Staffalsohaveaccesstoanonlinetechnicallibrarycontainingallcurrentfinancialstandards,guidanceandotherrelevantpublications.


11. Financial information (Group)

Year ended31 May 2017

Year ended 31 May 2016

£000 £000

RevenuefromauditworkforPIEsandsubsidiariesofPIEs 78 41

Revenuefromauditworkforotherclients 7,302 6,668

Revenuefromnon-auditworkforauditclients 5,419 4,737

Revenuefromnon-auditworkfornon-auditclients 30,862 29,374

Total 43,661 40,820

12. Partner remuneration and equity ownership

PartnersareremuneratedwhollyoutoftheprofitsoftheFirmthroughacombinationofinterest,salaryallocationand,forequitypartners,ashareoftheremainingbalanceofprofit.

Theassessmentofremunerationlevelstakesintoaccountpartners’performanceassessedagainstcriteriacoveringqualityofwork,clientservice,riskmanagement,technicalskills,workingcapitalmanagementandleadershipandmanagementresponsibilities.Auditpartnersarenotremuneratedonthebasisofsellingnon-auditservicestoauditclients.

JohnstonCarmichaelisamemberfirmofthePKFInternationalLimitedfamilyoflegallyindependentfirmsanddoesnotacceptanyresponsibilityorliabilityfortheactionsorinactionsonthepartofanyotherindividualmemberorcorrespondentfirmorfirms.

Disclaimer:Thisupdatehasbeenpublishedforinformationpurposesonly.Thecontentsofthisdocumentarenotasubstitutefortax,legalorprofessionaladvice.Thelawmayhavechangedsincethisdocumentwasfirstpublishedandwhilstallpossiblecarehasbeentakeninthecompletionofthisdocument,readersshouldseektaxadvicebasedupontheirownparticularcircumstances.

jcca.co.ukAberdeen 01224212222

Edinburgh 0131 220 2203

Elgin 01343547492

Forfar 01307465565

Fraserburgh 01346518165

Glasgow01412225800

Huntly 01466794148

Inverness 01463796200

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