News

Minimum terms: The ICAEW PII Regulations and PII minimum approved wording were amended on 1 October 2018 and will affect policies incepting or renewing from that date.

The changes to the PII Regulations have been made for completeness and to reflect current practice. They also reflect the increased limits of indemnity required of firms engaged in insurance distribution activities under the Insurance Distribution Directive.

Whilst the majority of the changes to the minimum wording are of a drafting nature, to make the minimum wording clearer and more concise, a few substantive amendments are worthy of note, including:

The words 'Insurer's reasonable opinion' have been removed from the 'non-compliance' clause, allowing insurers to claim reimbursement from an insured for prejudice caused by non-compliance with policy terms and conditions. The ICAEW's schedule of changes states that this means that insurers will now be required to establish on the balance of probabilities the amount which insurers say they would not have had to pay had the insured complied in full with policy terms and conditions.
A clause has been inserted that, where evidenced by the insured, there will not be a breach of the policy due to compliance by the insured with any rules, requirements, directions or guidance of any regulator, law enforcement agency or other official body having authority in respect of the insured,or generally any rule or requirement of law.
The definition of 'Professional Business' has been broadened to include: (i) 'other business activities' provided for or on behalf of others at any time anywhere in the world; and (ii) provision, sale, licence, lease, amendment or adaption by the insured of any computer software, hardware, solution, package or publication.

The new minimum wording can be accessed here:

Digital software for VAT

From 1 April 2019 most VAT registered businesses with a taxable turnover above £85,000 will be required to use digital software to keep accounts and to digitally submit their tax records to HMRC.

Failure to comply with the new rules may lead to penalties being imposed. Businesses utilising the new scheme will be able to access updated income tax estimates, which will assist with cash flow forecasting. Non-VAT registered businesses will also be able to opt into the scheme to take advantage of this.

HMRC are recommending that accountants identify all clients who may be affected by the new rules; inform those clients of the requirements; and agree how the clients will subsequently transfer digital information to the accountant. They also suggest accountants ensure they have a compliant method for submitting accounts to HMRC and set up an 'agent services' account with HMRC's new online services (see here).

Audit news

The 18 December 2018 saw the release of two interesting reports into the audit sector: Sir John Kingman's review of the FRC; and the Competition and Markets Authority's (CMA) interim report into competition in the audit sector.

The CMA has recommended a radical split of professional services firms and is now preparing for further consultation, and will make its full and final report later this year.

The Kingman Review has recommended the FRC be abolished and replaced by a new regulator, ARGA, which is accountable to parliament, with a new mandate, new leadership and new powers. The key points from the 76-page report include:

ARGA should have statutory recognition and funding to make it more robust. Kingman observed that the FRC was "an institution constructed in a different era – a rather ramshackled house, cobbled together with all sorts of extensions over time" and needed to be rebuilt with a "clear and precise sense of purpose and mission".
Responsibility for the supervision of actuaries should be transferred to the Prudential Regulation Authority.
ARGA's board should have the power to decide whether to launch audit investigations in cases where there is significant concern.
ARGA should have the power to approve and register firms conducting audits on public interest entities ('PIEs'), quoted businesses and other large businesses.
ARGA should have the same powers over accountants as it does for auditors when dealing with PIEs.
Auditors should have the power to report to ARGA where they have concerns about the viability of a PIE.
FTSE 350 audits should be carried out by two firms, at least one of which should be outside the Big Four, to build capacity in the audit market.

The Kingman Review can be accessed here

The Government has also announced the appointment of Donald Brydon, outgoing chair of the London Stock Exchange Group, to head up its review of UK audit standards. The Brydon review, or Project Flora as it was originally known, will build on the work of Kingman and the CMA considering the quality of standards delivered by UK auditors and what else can be done to make them “more effective and reputable” as well as how better to meet public, shareholder and investor expectations. A detailed Terms of Reference and project plan were published on 14 February 2019 and can be accessed here.

Probate

On 18 January 2019, the ACCA was permitted by the Legal Services Board to regulate its members to carry out the full gamut of probate work. Licensed members of the ICAEW have been authorised to conduct this work for some time.

It remains to be seen how many of the ACCA's 90,000 members will undertake regulated probate work, but between the ACCA and the ICAEW it seems that accountants are increasingly challenging solicitors for work in this area. Probate may therefore become of greater interest to accountants' insurers, although it is unclear whether many more claims or complaints will follow given that accountants have carried out significant (non-regulated) work in this area for many years.

Contact

For more information please contact Jonathan Hyde, Director Jonathan.Hyde@dwf.law, Mark Chapman, Solicitor Mark.Chapman@dwf.law or Philippa Varcoe, Senior Associate Philippa.Varcoe@dwf.law