building for the future - johnston carmichael · johnston carmichael is the trading name of...

Johnston Carmichael LLP

Transparency Report

Year ended 31 May 2019

Building for the future

2 Johnston Carmichael LLP Transparency Report | Year ended 31 May 2019

Contents

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

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

3. Legal structure and ownership ...........................................................................................................5

Legal structure ......................................................................................................................................................5

Ownership ..............................................................................................................................................................5

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

Regulation...............................................................................................................................................................6

4. PKF International Network...................................................................................................................7

Introduction ...........................................................................................................................................................7

Legal basis ..............................................................................................................................................................7

Key elements of the licensee agreements..................................................................................................7

Structure, committees and relationships between them ......................................................................8

The boards or committees’ functions ..........................................................................................................8

Quality assurance .................................................................................................................................................9

Memberfirms,countriesandturnover(includingnumberofofficesandemployees) ........... 9

Membership of the Forum of Firms ........................................................................................................... 9

5. Governance ............................................................................................................................................ 9

6. Quality control ......................................................................................................................................10

i.Leadershipandresponsibilitiesforqualitywithinthefirm .............................................................10

ii.Relevantethicalrequirements ..................................................................................................................10

iii.Acceptanceandcontinuanceofclientrelationshipsandspecificengagements .................. 11

iv.Humanresources ........................................................................................................................................... 11

v.Engagementperformance .......................................................................................................................... 11

vi.See‘Monitoring’sectionbelow. .............................................................................................................. 12

7. Monitoring .............................................................................................................................................. 12

8. Public Interest Entities ........................................................................................................................ 13

9. Independence procedures ................................................................................................................. 13

10. Learning and development ................................................................................................................ 13

11. Financial Information (Group) ........................................................................................................... 14

12. Partner remuneration and equity ownership ................................................................................. 15

APPENDIX 1:

PKFINetworkEUEEAmemberfirmsprovidingstatutoryauditofannualandconsolidated

financialstatements......................................................................................................................................16


1. Introduction

AtJohnstonCarmichael,wetakealong-termviewofourbusinessandknowthatourcommitmenttobuildingalegacybusinesswhichfuturegenerationscanenjoy,requiresustokeepevolvingandimprovingtomeetthechangingpoliticalandeconomiclandscapeweoperatein.

Intheseunpredictabletimes,ourprofessionisalsoexperiencingchangeatapaceneverseenbefore,but Johnston Carmichael is fully committed to embracing that change and the opportunities that come with it.

Wefirmlybelievethatinordertobuildasustainablebusinessthatisofbenefittoourclients,ourpeopleandwidersociety,thenwemustensurethateverythingwedoisconsistentwithourcorevalues.Ourvaluesareimportanttous.Theydriveourdecisionsandaffectourbehaviours.Theyuniteusasafirmandformthebasisofourmessages.

Weknowthatourpeopleandourclientswanttoworkwithandbeassociatedwithafirmthatfollowsthehighestprofessionalandethicalstandardsandwearecommittedtoachievingthosestandards,notjustforourfirm,butalsotoplayourpartinsupportingtheimportantworkthatprofessionalbodiessuchasICASandACCAdoinregulatingandsupportingthedevelopmentofourprofession.Assuch,wearefullyinvestedinpromoting,inspiringandenablingprofessionalexcellenceacrossourfirmandensuring that these dimensions play a key role when assessing the performance of our leaders in the business, setting the tone from the top.

Theyearto31May2019hasbeenafurtheryearofpositivechangeandprogressandweremainveryencouragedabouttheprospectsandtheopportunitiesforourpeopleandourfirm.

Webelievethatourbrandrecognitionandcapabilitycontinuetogrow,asdoestheshapeofourfirm.Wehaveexpandednotonlytherangeofservicesweofferandthegeographicalmarketsweoperatein,butwehavealsobeeninvestinginensuringwehaveastrongandstableplatformfromwhichtooperate.Thisincludesemployingourfirstin-housecounseltosupportourongoingfocusoncompliance,riskmanagementandqualitycontrolandtheappointmentofanewchieffinancialofficer.Wealsorecruitedanewleaderforourpeoplefunctionreflectingtheimportanceweplaceonmakingourfirmagreatplacetowork.

Intheyearaheadwewillcontinuetoinvesttoensurewebuildonouralreadystrongmarketpositionandourreputationforprovidingexceptionalservicetoourclients.Thishasbeenevidencedbyfurtherinvestmentinourauditcapabilitiesbothintheleadershipteamandinthetechnicaldepartment.

Iconfirm,onbehalfoftheBoard,that:

• ourinternalqualitycontrolsystemsarefunctioningeffectively;• ourindependencepracticesareappropriateandhavebeensubjecttoaninternalcompliance

review;and• wehavepoliciesandproceduresinplacetoensurethatthecontinuingeducationofstatutory

auditorsisasrequiredbyrelevantlaw,regulationandprofessionalstandards. Webelievestronglythat,asaleadingfirmofCharteredAccountantsandBusinessAdvisers,wehaveanimportantroletoplayinhelpingbuildastrongereconomyandsociety;creatingexcellentcareeropportunitiesandinvestinginthecommunitiesinwhichweliveandwork.

AndrewWalkeronbehalfoftheBoard


We are pleased to present our Transparency Report that has been prepared in accordance with therequirementsofArticle13fromRegulation(EU)No537/2014andtheamendedDirective2014/56/EUoftheEuropeanParliamentandoftheCouncil.Thisreportcoverstheyearended31May2019andhasbeendesignedtohelpexplainwhoweare,theownershipandgovernanceofthefirmandthepoliciesandprocedureswehaveinplacetomaintainourindependenceandensurethatwecomplywithallapplicableauditandethicalstandardstodeliverhighqualityservicesinallareas.

2. About Johnston Carmichael

JohnstonCarmichaelisScotland’slargestindependentfirmofCharteredAccountantsandBusinessAdvisersandweareoneoftheUK’stop20accountancyfirms.Sincethefirmwasformedin1936,wehavegrowntojustover800staffand55partnersover12offices.Aspartofour continued growth strategy, our partner numbers increased to 60 on 1 June 2019.

Ourbusinesslinesandindustryspecialismsare:


Ourindustryexperiencespans14sectors:

Wealsobelievestronglyingivingbacktothecommunitiesweserve.Annually,staffinour12officessuggestandvoteonwhichlocalcharitytochampion,enhancingcommunitiesthroughoutScotland.Thediverserangeofcharitiescoverssupportandadviceservicesforpeoplestrugglingwithmentalillness,palliativecareandsupportandaholidayretreatforfamilieswithchildrensufferingfromcancer.

Since2016wehavebeenproudsupportersofKiltwalk,Scotland’slargestmassparticipationeventwhich exists to enable thousands of people from all walks of life to come together to raise money for thecharitiesandlocalcausesthattheycareabout.Eachyear,ourteamsgettogethertoparticipateintheirlocalcommunityevents.Furtherdetailscanbefoundathttps://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 Partnership registeredinScotland(SO303232).TheregisteredofficeisatBishop’sCourt,29AlbynPlace,AberdeenAB101YL.

Ownership

JohnstonCarmichaelLLP(thefirm)isownedon31May2019byits47(2018:48)equitypartners.

The term “Partner”, used in relation to the LLP, refers to a member of Johnston Carmichael LLP.

AlistofthemembersofJohnstonCarmichaelLLPisavailableforinspectionatouroffices.

JohnstonCarmichaelLLPhastwoactivesubsidiarycompanies:

• JohnstonCarmichaelWealthLimitedwhichprovidesfinancialplanningadvice.• JohnstonCarmichael(Scotland)Limitedwhichprovidesbookkeepingandpayrollservicesaswell

asservicestogroupcompanies.


Locations

Regulation

JohnstonCarmichaelisregisteredtocarryonauditworkintheUKandRepublicofIrelandandregulatedforarangeofinvestmentbusinessactivitiesbytheInstituteofCharteredAccountantsofScotland(ICAS).Detailsaboutourauditregistrationcanbeviewedatwww.auditregister.org.uk,underreferencenumber0274andwww.cro.ie/auditorsunderreferencenumberAS0274.Asat31May201914(2018:14)partnersand9(2018:9)employeeshadResponsibleIndividual(RI)statusgrantedbyICAS.DetailsoftheprofessionalrulescanbefoundintheFRC’sEthicalStandard,InternationalStandardsonAuditing(UK),PracticeNotes,BulletinsandtheCompaniesAct 2006.

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

JohnstonCarmichaelislicensedtoactasaninsolvencypractitionerintheUKbytheInstituteofCharteredAccountantsofScotland.DetailsoftheInsolvencyPractitionerDirectorycanbefound at https://www.insolvencydirect.bis.gov.uk/fip1/.DetailsofandaccesstotheprofessionalrulescanbefoundintheInsolvencyPermitRegulations;StatementsofInsolvencyPractice(SIPS);andtheICASCodeofEthicsPartD:InsolvencyPractitioners.

Johnston Carmichael Wealth Limited is authorised and regulated by the Financial Conduct Authority(FCA)underreferencenumber114322.


4. PKF International Network

Introduction

WeareproudtobetheScottishmemberfirmofthePKFInternational(PKFI)familyoflegallyindependentfirms.PKFIconsistsofmemberfirmsinlocationsaroundtheworld,providingassurance,accounting,businessadvisoryandtaxationservices.ThenetworkisamemberoftheForumofFirms–anorganisationdedicatedtoconsistentandhigh-qualitystandardsoffinancialreporting and auditing practices worldwide.

ThefirmdoesnotacceptanyresponsibilityorliabilityforactionsorinactionsonthepartofanyotherindividualfirmorfirmswithinPKFI.

Legal basis

ThenetworkformedbyPKFInternationalLimited(theLicensorortheCompany)andthememberfirms(theLicensees)isregulatedbyadherencetoanOperatingLicenceAgreement(OLA)betweentheLicensorandindividualLicensees.TheOLAauthorisestheLicenseetousethePKFnameasdefinedunderspecificcircumstances,underspecificconditions,forspecificpurposesandinaspecificterritory,inconsiderationforwhichtheLicenseepaysalicencefeetothe Licensor.

TheLicensorisaprivatecompanyregisteredinEnglandandlimitedbyguarantee.TheCompany’sArticlesofAssociationrequireaBoardofDirectorswhoconductthebusinessoftheCompany.TheBoardhasastrategicandco-ordinatingrolebuthasnoexecutiveauthorityoftheoperationsofindividualmemberfirms.

EachLicenseeisalegallyindependententityownedandmanagedineachlocation.Contractualrelationsareonlyformedbetweenaclientandthememberfirmengagedbytheclientandnoothermemberfirmmaybeheldliable.TheCompanyhasnofinancialormanagementinterestinanymemberfirm.NoneofthedirectorsoftheCompanyhasafinancialormanagementinterestinanymemberfirmotherthanhisorherown.

Key elements of the licensee agreements

The basic membership requirements applicable to members of the PKF International network arecontainedwithintheOperatingLicenceAgreement(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.TheChairmanoftheRegionalBoardisnormallyamemberoftheInternationalBoard.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.Committeemembersareselected according to their technical expertise and possible contribution and to ensure that each region is represented.

PKFIpresentsanannualGlobalGatheringforallmemberfirmsandanannualInternationalAssuranceMeetingandInternationalTaxMeeting.Eachregionhasitsownmeetingtoaddressmatters of regional interest.

The boards or committees’ functions

TheInternationalProfessionalStandardsCommittee’s(IPSC)principalobjectivesencompassthreefocusareas:

1. Qualityassurance(seealsoQualityAssurancebelow)

a.Establishandcommunicategeneralpracticestandardsandstandardsfortheperformanceofcertaintypesofprofessionalworkbymemberfirms;

b.Monitorthegeneralpracticestandardsandqualityofworkofmemberfirms.

2.Memberfirmsupport–AssuranceandAccounting

a.Maintainpracticeaids,includingsoftware,manualsandtemplates;and

b.Makeavailabletrainingmaterialandarrangerelevantmeetingandtrainingsessions.

3. Global regulation of PKFI network

a.Monitorregulatoryandlegaldevelopmentsaswellaslitigationandenforcementactionsrelevanttointernationalnetworksanditsimplicationsforthenetworkandmemberfirms;and

b.Contributetointernationaldevelopmentsanddebatesrelevanttotheprofessionandaccounting networks.


The International Tax Committee co-ordinates publication of the PKF Worldwide Tax Guide and a number of technical newsletters, arranges the annual International Tax Meeting, and facilitates resourcesharingamongmemberfirms.

Quality assurance

PKFIoperatesaglobalmonitoringprogramcoveringmemberfirms.Theprincipalobjectivesare to ensure that the standards expected for the performance of certain types of professional workbymemberfirmsareestablishedandcommunicatedtofirms,thatthosestandardsmeet appropriate recognised professional practice requirements at least for transnational and referred work, and that a program of monitoring of compliance with expected standards is operatingeffectively.

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(seeAppendix I),asreportedintheFirmComplianceReporting30June2018,isUS$124.60million.

ThePKFInternational(PKFI)networkconsistsofmemberfirmsandcorrespondentsinover400locationsoperatingin150countriesacrossfiveregions,providingassurance,accounting,taxationandbusinessadvisorysolutions.PKFImemberfirmshave£1.139billion(US$1.504billion,€1.288billion)inaggregatefeeincomeandapproximately18,000employees(yearendJune2018).

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.

5. Governance

TheBoardisresponsiblefortheoverallstrategicdirectionofJohnstonCarmichael.MembersoftheBoardareappointedbyapprovalofthepartnergroup.

TheBoardmeetsregularlytodiscussandreviewprogresswiththefirm’sstrategyandaddressoperationalissuesinthefirm.


Asat31May2019,theBoardcomprisedof:

• AlexanderManson(ChiefExecutiveuntil31July2019,Chairfrom1August2019)• AndrewWalker(ChiefExecutivefrom1August2019)• AndrewShepherd(retiredfromtheBoard1August2019)• Craig MacPherson• MarkHouston

ThecompositionoftheBoardisreviewedperiodicallyandsuccessionplanningforboththeBoardandallkeyleadershippositionsinthefirmisregularlyreviewed.

InadditiontotheBoard,thefirm’sleadershipandgovernancestructureincludestheappointmentofBusinessLineHeads,OfficeHeadsandSupportFunctionHeads.

ThefirmencouragesacultureofcollaborationtoensurethatweoperateasonefirmandcaptureandutilisethebestcapabilityavailableacrossthefirmtoaddressclientandtheFirm’sneeds.

Thefirm’ssubsidiariesarecorporateentitiesandcertainpartnersaredirectorsofthesecompanies to represent the members of the partnership.

6. Quality control

ThefirmcomplieswiththeInternationalStandardonQualityControl1(ISQC1)andthesixkeyelements contained within in it.

I. Leadership and responsibilities for quality within the firm

ResponsibilityforensuringthattheFirmcomplieswithallregulatoryrequirements,thatappropriatepoliciesareinplaceforallservicestoensurethatworkundertakentoasatisfactorystandardwithinthefirmlieswiththeChiefExecutive,AndrewWalker(from1August2019)(previouslyAlexanderManson).

AnumberofpartnersandDirectorhaverolestoassistwiththisresponsibilityincluding:

• DavidMcBain(AuditRI)-AuditCompliancePartnerandAuditEthicsPartner• ScottHolmes(AuditRI)–DeputyEthicsPartner• ShareenGault(GeneralCounselandHeadofRisk&Compliance)-MoneyLaundering

ReportingOfficer

Allofourpoliciesarepublishedonourintranet,TheHub.Allofourpoliciesareavailabletoallofourstaffmembers,irrespectiveofthebusinesslinetheyworkin.

ii. Relevant ethical requirements

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

Incasesofdoubtorwhereourindependence,integrityandobjectivitydo,ormightbeperceivedtoarise,theFirm’sEthicsPartner(forauditassignments)orChiefExecutive(for


non-auditassignments)mustbealertedassoonaspossibleandtheappropriateactiontaken.

Everyoneinthefirmisrequiredtoconfirmannuallythattherearenoindependenceissuesthatoughttobeaddressed.ThisisachievedbycompletionoftheindependencedeclarationquestionnairethattheEthicsPartnercirculates.

AllstaffarerequiredtonotifytheEthicsPartnerofanydirectorshipsorsimilarofficestheyhold.

TheTechnicalDepartmentoverseathattherotationofkeyauditstaffonallofourListedandPublicInterestEntityAuditsoccursattheappropriatetime.FurtherdetailsonthiscanbefoundinSection9ofthisreport,‘Independenceprocedures’.

iii. Acceptance and continuance of client relationships and specific engagements

ThefirmhasadetailedClientTakeOnprocessthatmustbefollowedbeforeacceptinganewclient.Theprocedureshavebeendesignedtoensurethatallstafffollowthecorrectprocessesforclientidentification,independence/conflictassessments,thatstaffallocatedtotheassignmenthavetherelevantskills/specialistknowledgetoperformtheirrolesandthat the risk of accepting the engagement is deemed acceptable.

Fornewauditclients,theAuditRiskCommittee,actingonbehalfoftheHeadofAudit,approvetheclientappointment.Aclientriskassessmentmemorequirestheteamtoconsidertheauditriskstheassignmentposes,suchassignificantjudgementalaccountingas well as the risk to our Firm, including any potential reputational risks. The Audit Risk Committeereviewthememo,obtainingadditionalinformationbeforeapprovingourappointment.

Conflictandindependencechecksareundertakenbeforetheclientcanbeaccepted.ForauditclientswithaninternationalpresenceinadditiontoPublicInterestEntities(PIEs)andlistedcompanies,ourconflictchecksextendacrossthePKFINetwork.

Oncethefirmhasacceptedthenewclient,oranewengagementfromanexistingclient,anEngagementletterisissuedwhichcontainsourstandardtermsandconditions,adescriptionof our understanding of the engagement and what is required of us. Work does not commenceuntiltheclienthasreturnedasignedengagementlettertousorhasconfirmedtheiracceptanceofthespecifiedtermsandconditions.

iv. Human resources

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

v. Engagement performance

TheTechnicalDepartmentisresponsibleformonitoringthefirm’sauditengagementperformanceandensuringthatthefirm’sauditmethodologyisfollowed.

Aclearreviewhierarchyisinplaceforallauditassignments.PolicieshavebeenestablishedwhichclearlydefinewhenanauditassignmentisrequiredtobereviewedbyanotherRI.Allofour2ndRIreviewersareapprovedbytheAuditCompliancePartner.New2ndRIreviewersaresupportedinthisrolebytheAuditCompliancePartner.TechnicalandEthicsreviewsarealsoincludedinourpoliciesandprocedures.


Allnecessarypoliciesandproceduresareavailabletoallstaffandregulartrainingandfeedbackisprovided.

vi. See ‘Monitoring’ section below

7. Monitoring

QualitycontrolismonitoredbytheTechnicalDepartment,supportedbypartnerswithspecialistindustry knowledge and experience, on a risk-based approach. A cyclical approach to our internalqualitycontrolreviewsisusedtoensurethatallthefirm’sspecialistssectorsandResponsibleIndividuals(RIs)aresubjecttoreviewatleastonceeverytwoyears.Thecycleisacceleratedwhentherearesignificantchangestoaccounting,auditingandotherregulatoryrequirements.ReviewsarealsoacceleratedwhenanRI’sauditfileisidentifiedasnotmeetingthe required standard.

AspartoftheFirm’sfocusonauditquality,ourinternalreviewsaremarkedasapassorfail.Afailgradeisgivenwhentherevieweridentifiesamaterialerrorinaprimarystatement,theauditopiniononthestrategicand/ordirectors’reportisincorrectorthereisinsufficientorinappropriateauditevidenceonkeyandmaterialitemsincludedwithinthefinancialstatements.Intheeventofafail,theRIisprovidedwithadetailedsummaryofthereasonsforthefailwhichtheymustrespondto.OurTechnicalDepartmentundertakearootcauseanalysiswhichidentifiestheunderlyingreasonsforthefailandwillensurethatrelevantactionistaken,suchasprovidingtrainingand/oramendingourauditsystem.AsummaryofotherareaswhichrequireimprovementisalsoprovidedtotheRI,togetherwiththereviewer’sdetailednotes.

Thereviewsaredesignedtoensurethatallrelevantstandardsarebeingmet,thatallstaffmembersaremaintainingtheirknowledge,professionalskillsandvaluesatasufficientlyhighlevelandthatanypotentialissuesareidentifiedearlyonandthenadequatelyaddressed.TheinternalreviewsalsoincludeareviewoftheindependencepracticesoneachfileandtheindependenceproceduresfortheFirmarealsoconsideredaspartofthewholefirmreview.

AreportisprovidedtoeachRI,detailingthekeyfindingsoftheirreview.Asummaryofthekeyfindingsofallourinternalreviewsaresharedwiththeauditteamsonanannualbasisandfirm-wideinternaltrainingcoursesprovideclarificationandreinforcetheFirm’scommitmenttoauditquality.

Inadditiontothecompliancereviewsofauditfiles,theAuditCompliancePartner,isresponsibleforensuringthattheannualWholeFirmComplianceReviewhasbeencompletedandallrecommendationshavebeenactioned.

Thefirmisalsoregulatedbytwoexternalregulators,theFinancialReportingCouncil’sAuditQualityReview(AQR)teamandICASforallotherauditassignments.ThelastICASreviewwasin2018andweanticipateourfirstAQRreviewtooccurinthenextfourtofiveyears.

As a requirement of our international network membership of PKFI we must comply with ISQC 1. PKFI operates a global monitoring programme to ensure that the required standard is being met.ThePKFIreviewwasundertakeninSpring2019.WearealsorequiredtosubmitanannualMember Firm Compliance Report to PKFI.


8. Public Interest Entities

Duringtheyearto31May2019,thefirmexpressedanopiniononthefinancialstatementsofDiscoveryEducationplcandSummitHealthcare(Wishaw)plc,entitiesthatcurrentlymeetthedefinitionofaPublicInterestEntity(PIE).WehavealsobeenappointedasauditorstoHpCKing’sCollegeHospital(Issuer)plcandDudleySummitplcandexpressedourauditopiniononthese in the year to 31 May 2020.

9. Independence procedures

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

Everyoneinthefirmisrequiredtoconfirmannuallythattheyhavenoindependenceissuesthatneedtobeaddressed.Wherethereareindependenceissues,theAuditEthicsPartnerisinformed and appropriate action agreed and undertaken.

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

AsaPKFImemberfirm,wealsoupdatetheTransnationalEntitiesDatabase(TREND)withthedetailsofallourtransnationalclients.ThisisaccessibletoallPKFIfirmsandisusedtohelpensure 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.AcentrallogofperiodsofinvolvementismaintainedforallofourPIEandlisted audits, highlighting when rotations will occur. Approximately two years before a rotation isrequiredtooccur,potentialreplacementsforkeyteammembersareidentified.Theirtrainingneedsareconsideredandresolvedbeforetheirinvolvementwiththeassignmentcommences.Forourotherclients,longassociationindependencethreatismitigatedbyanethicsreviewbeing undertaken by another RI, appointed by our Core Audit team.

10. Learning and development

AllmembersoftheAuditBusinessLinearerequiredtocomplywithallthefirm’spoliciesandprocedures,includingcontinuingprofessionaldevelopment(CPD).Fortheyearto31May2019,ourLearningandDevelopmentteamarewereresponsibleforensuringthatrelevantstaffareontracktomeetthefirm’sminimumCPDrequirementsforanyspecialistsectorsaswell as generally, reporting expected shortfalls to the Audit Compliance Partner. The Technical Departmenthavesubsequentlytakenonthisresponsibility.Staffarerequiredtoexplainhowanyprojectedshortfallwillberesolved.TheHumanResourcesteamoverseethefirm’srecruitment,appraisalandtrainingprocessestoensurethatallstaffareoperatingattherequiredleveland


aredevelopingandmaintainingtherightskillsforourclients.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.

Inadditiontotheabovetrainingprogramme,duringtheyearended31May2019,thefollowingmandatorytrainingcourseswererunforauditstaffwhohadcompletedtheirtrainingcontractandpartners:

• Annualtwo-dayconferenceforallAuditSeniors,AuditSupervisors,Managers,Seniormanagers,DirectorsandPartnersincludingatechnicalupdatesessionrunbyMerciaGroup.

• Twohalfdayauditforumsforthesameaudienceastheaboveconference(Winter2018andSpring2019).

Specialistcourses,forallapplicablestaffincluded:

• WebinaronauditingPublicInterestEntitiesandListedEntities.• Introduction to Limited Liability Partnerships• AgriculturalUpdate• Webinar on key changes in International Financial Reporting Standards including IFRS 15,

IFRS 16 and IFRS 9

11. Financial information (Group)

Year ended31 May 2019(unaudited)



£000 £000 £000

RevenuefromauditworkforPIEsandsubsidiariesofPIEs 311 194 78

Revenuefromauditworkforotherclients 8,237 7,496 7,302

Revenuefromnon-auditworkforauditclients 5,717 5,408 5,419

Revenuefromnon-auditworkfornon-auditclients 35,022 32,408 30,862

Total 49,287 45,506 43,661


12. Partner remuneration and equity ownership

PartnersareremuneratedwhollyoutoftheprofitsoftheFirmthroughacombinationofinterest,salaryallocationand,forequitypartners,ashareoftheremainingbalanceofprofit.

Theassessmentofremunerationlevelstakesintoaccountpartners’performanceassessedagainstcriteriacoveringqualityofwork,clientservice,riskmanagement,technicalskills,working capital management and leadership and management responsibilities. Audit partners arenotremuneratedonthebasisofsellingnon-auditservicestoauditclients.

16 Johnston Carmichael LLP Transparency Report|Yearended31May2019

Appendix 1 - PKFI network EU EEA member firms providing statutory audit of annual and consolidated financial statements

Registered name Country Headofficecity

PKFCorti&PartnerGmbHWirtschaftsprüferundSteuerberater Austria Graz

PKFÖsterreicher–StaribacherWirtschaftsprüfungsGmbH&Co.KG Austria Vienna

PKFCenturionWirtschaftsprüfungsgesellschaftmbH Austria Vienna

PKFRößlhuber&PartnerSteuerberatungsGmbH&CoKG Austria Salzberg

PKF-VMBBedrijfsrevisorencvba Belgium Antwerp

PKFBulgariaLtd. Bulgaria Sofia

PKF Croatia Croatia Zagreb

PKF ATCO Limited Cyprus Nicosia

PKFSavvides&CoLtd Cyprus Limassol

APOGEOGroup,SE Czech Republic Prague

PKFMunkeboVindelev,StatsautoriseretRevisionsaktieselskab Denmark Copenhagen Glostrup

PKFEstoniaOÜ Estonia Tallinn

CabinetGROSS-HUGEL France Strasbourg

Cogeparc S.A. France Lyon

PKF Audit Conseil France Marseille

PKFFasseltSchlagePartnerschaftmbB Germany Berlin

PKFIndustrie-undVerkehrstreuhandGmbHWirtschaftsprüfungsgesellschaft Germany Munich

PKFIssingFaulhaberWozarAltenbeckGmbH&Co.KG Germany Würzburg

PKFRiedelAppelHornigGmbH Germany Heidelberg

PKFSozietatDr.Fischer Germany Nuremberg

PKFFOGT&PARTNERWirtschaftsprüferSteuerberater Germany Herford

PKFWMSBruns-Coppenrath&PartnermbBWirtschaftsprüfungsgesellschaftSteuerberaterRechstanwälte

Germany Osnabrück

PKFWULF&PATNERmbBWirtschaftsprüfungsgesellschaftSteuerberatungsgesellschaft Germany Stuttgart

PKFEuroauditingS.A. Greece Athens

PKF Audit Kft Hungary Budapest

PKFO’Connor,Leddy&HolmesLimited Ireland Dublin

PKF-FPM Partnership Ireland Balbriggan

Associazione Professionale Studio Maurizio Godoli Italy Bologna

PKF Italia S.p.A Italy Milan

PKF Studio TCL – Tax Consulting Legal Italy Genoa

PKFLatviaSIA Latvia Marupe

L’AllianceRévisionS.à.r.l. Luxembourg Luxembourg City

PKFAudit&ConseilS.à.r.l. Luxembourg Luxembourg City

PKF Malta Malta Birkirkara

PKF Wallast Netherlands Delft

PKFBeckmanLundevallRevisjonAS Norway Oslo

PKFConsultSpółkazograniczonąodpowiedzialnościąSp.k. Poland Warsaw

PKF Il Portugal Lda Portugal Lisbon

PKFEconometricaS.R.L. Romania Timisoara

PKF Finconta S. R. L. Romania Bucharest

PKFSlovenskoS.R.O Slovakia Prievidza

PKF – Audiec SAP Spain Barcelona

PKFATTEST Spain Madrid

PKFRevidentiaAB Sweden Stockholm

Francis Clark LLP UnitedKingdom Exeter

Johnston Carmichael LLP UnitedKingdom Aberdeen

KLSA LLP UnitedKingdom Harrow

PKF Littlejohn LLP UnitedKingdom London

PKF-FPM Accountants UnitedKingdom Co.Down

JohnstonCarmichaelisamemberfirmofthePKFInternationalLimitedfamilyoflegallyindependentfirmsanddoesnotacceptanyresponsibilityorliabilityfortheactionsorinactionsonthepartofanyotherindividualmemberorcorrespondentfirmorfirms.

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

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