Outcome of disciplinary case in connection with Presbyterian Mutual Society

10/16

The Financial Reporting Council (FRC) announces the outcome of the disciplinary case in connection with the conduct of Moore Stephens in Northern Ireland (Moore Stephens (NI) LLP) and David McClean, Audit Engagement Partner, in relation to the audit of the financial statements of Presbyterian Mutual Society (PMS).

In a settlement agreed between the Deputy Executive Counsel to the FRC, Jayne Astley, Moore Stephens (NI) and Mr McClean, and approved by a legal member of the FRC independent Tribunal, Moore Stephens (NI) and Mr McClean admitted that their conduct fell significantly short of the standards reasonably to be expected of a Member Firm and a Member in that they failed to act in accordance with Fundamental Principle (C) ‘Professional Competence and Due Care’ of the Institute of Chartered Accountants in Ireland’s (CAI) 2006 Code of Ethics for Members as:

• In relation to year ends 2007 and 2008, they failed to obtain an adequate general understanding of the legal and regulatory environment in which PMS operated for the purposes of the audit and, failed adequately to test the assumption on the part of PMS’s Board and management that it was complying with its own rules and with applicable legislation and regulation and failed to apply professional scepticism and to obtain sufficient audit evidence to corroborate assurances and representations provided by management (including in particular by recognising or acting upon the need to consider or obtain specialist legal advice);
• During the 2008 audit, they failed adequately to test management’s assertions that the inadequacy of the liquidity levels at the 2008 year end would be remedied and had insufficient evidence to conclude that the going concern assumption was appropriate and that PMS’s lack of liquidity had no impact on the audit opinion.

The parties agreed the following terms of settlement:

• Moore Stephens received a fine of £200,000, discounted for settlement to £140,000 and a Reprimand.
• Mr McClean received a fine of £29,000, discounted for settlement to £20,000 and a Reprimand.

The amount of the agreed fines took account of the fact that Moore Stephens (NI) LLP is a legally distinct and economically separate entity from Moore Stephens UK Limited and Moore Stephens International Limited.


Notes to editors:

1.    The FRC is responsible for promoting high quality corporate governance and reporting to foster investment.  We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work.  We represent UK interests in international standard-setting.  We also monitor and take action to promote the quality of corporate reporting and auditing.  We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.

2.   The Particulars of Fact and Acts of Misconduct: Moore Stephens (NI) LLP and David McClean (25 January 2016) can be found here (PDF).

The Settlement Agreement: Moore Stephens (NI) LLP and David McClean (25 January 2016) can be found here (PDF).

The Particulars of Fact and Acts of Misconduct: Philip Black (5 October 2015) can be found here (PDF).

The Settlement Agreement: Philip Black (5 October 2015) can be found here (PDF).

3.  In relation to disciplinary matters, the FRC is the independent, investigative and disciplinary body for accountants and actuaries in the UK dealing with cases which raise important issues affecting the public interest. In brief, the stages of the disciplinary process are:

• Decision to investigate
• Investigation
• Decision whether to bring disciplinary proceedings against Member Firm or Member and, if so decided, referral to Disciplinary Tribunal
• Tribunal hearing
• Determination and imposition of sanction and/or costs orders

The FRC can start a disciplinary investigation in one of two ways: (i) the professional bodies can refer cases to the FRC; and (ii) the FRC may decide of its own accord to investigate a matter. The Conduct Committee will consider each case identified or referred to it and decide whether or not the criteria for an investigation are met.

Investigations are conducted by Executive Counsel and the Professional Discipline team within the Conduct Division. If disciplinary proceedings are commenced, Executive Counsel delivers a complaint to the Conduct Committee. The Conduct Committee then instructs the Convener to appoint a Disciplinary Tribunal.

3. A settlement agreed between the Deputy Executive Counsel to the FRC, Jayne Astley and Philip Black, non-executive former director of Presbyterian Mutual Society, and approved by a legal member of the FRC independent Tribunal was announced on 18^th November 2015.