Changes to ISQM 1

Changes to ISQM 1

Following on from last week’s blog on cold file reviews and ISQM 1, this week we look at the various factors that can cause changes to the monitoring and remediation elements of ISQM 1.

The following variables are usually areas that need updated:

  • The quality objectives set out in the system of quality management (SoQM);
  • The quality risks of their assessments; and
  • The responses to those risks.

Changes in these areas are mainly a result of:

  • Changes in the nature and circumstances of the firm and its engagements; and
  • Remedial actions to address deficiencies in the system of quality management.

These changes can arise in a variety of ways, such as:

  • Changes to quality objectives;
  • A need for new additional quality objectives g. if the firm opens a new office, merges with another firm or starts providing a new service;
  • Additional quality objectives established by the firm may no longer be needed, or may need to be modified; and
  • Root cause analysis (RCA) may identify that previous attempts at fixing issues from past cold file reviews are no longer be needed, need to be modified, or require a new solution.

Remember that the Specified Responses prescribed by the standard (detailed here in paragraph 34) must not be modified or removed, unless one or more of them is no longer relevant to the firm. The firm may decide that it’s appropriate to modify how these Specified Responses are designed and implemented.

The types of changes that can be triggered by the cold file review process broadly fall into two categories:

  1. Changes to quality risks such as:
  • New quality risks are identified;
  • Existing quality risks no longer qualify as quality risks;
  • Existing quality risks need to be modified; and
  • Existing quality risks need to be reassessed.

 

  1. Changes to responses to quality risks such as:
  • New responses may be designed and put into action;
  • Existing responses may be discontinued and deemed no longer appropriate; and
  • Existing responses may need to be adjusted for changes in circumstances such as a new audit programme.

For more on the whole ISQM process please see our ISQM 1 Toolkit on our website here.

Please go to our website to see our:

  • Anti-Money Laundering Policies Controls and Procedures Manual (March 2022) — View the table of contents
  • AML Webinar (December 2023) available here, which accompanies the AML Manual. It explains the latest legal AML reporting position for accountancy firms and includes a quiz. Upon completion you receive a CPD certificate for attendance in your inbox.
  • Letters of engagement and similar templates—Please visit our website here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items bought together.
  • ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please contact John McCarthy FCA by email at john@jmcc.ie.
  • We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. The ISQM TOOLKIT 2022 is available to purchase here.
Are Cold File Reviews Necessary?

Are Cold File Reviews Necessary?

Are cold file reviews necessary? A good question you might say.

One of the main characteristics of ISQM (Ireland) 1 (hereafter ISQM 1) (ISQM1 Updated Oct 2023) is that the standard is iterative, and so it is implemented is by carrying out audits of cold file and hot file reviews. Ideally these reviews are carried out by someone experienced and unconnected with the audit assignment so that the results are fully objective and up to date.

One objective of the reviews is to identify issues that may require amendment in the ISQM so that it is a constantly evolving document.

Per ISQM 1 requirements, the monitoring process must provide a basis for identifying deficiencies in the system of quality management such that prompt remedial action can be taken, and the deficiencies can be communicated to the audit teams without delay.

ISQM 1:38 requires the monitoring process to include the inspection of completed audits (cold file reviews). The cold file reviews must include at least one completed audit from each Responsible Individual on ‘a cyclical basis determined by the firm’.

Bear in mind that the monitoring process does not only involve carrying out cold file reviews. The system of quality management must be generally monitored to achieve the objectives of ISQM 1. These objectives are set out in the question: “What is the purpose of the monitoring and remediation element of ISQM 1?”

For more on the whole ISQM process please see our ISQM 1 Toolkit on our website here.

Please go to our website to see our:

  • Anti-Money Laundering Policies Controls and Procedures Manual (March 2022) — View the table of contents
  • AML Webinar (December 2023) available here, which accompanies the AML Manual. It explains the latest legal AML reporting position for accountancy firms and includes a quiz. Upon completion you receive a CPD certificate for attendance in your inbox.
  • Letters of engagement and similar templates—Please visit our website here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items bought together.
  • ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please contact John McCarthy FCA by email at john@jmcc.ie.
  • We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. The ISQM TOOLKIT 2022 is available to purchase here.
6 Red Flags of Money Laundering

6 Red Flags of Money Laundering

The February 2023 issue of CA Magazine outlines some red flags of money laundering. Here we list six warning signs, adapted from that article, that accountants cannot afford to ignore.

  1. Evasiveness or unexplained spike in income: A client exhibiting evasive or nervous behaviours could indicate suspicious activity. Likewise, if turnover has doubled or tripled, with no explanation, it’s a red flag. Some clients may also find themselves being used as “money mules”, targeted by criminals using their bank accounts to help move stolen money.
  2. Clients in high-risk countries: Sanctions now prohibit firms from offering accountancy and consulting services to businesses linked to Russia and its ally Belarus, following the Ukraine invasion. While most accountants will be aware of this (along with sanctions against North Korea and Iran), the Government also urges the regulated sector to apply enhanced customer due diligence when dealing with around 30 other high-risk jurisdictions, including the Philippines, the UAE, and Barbados.
  3. Cash-based businesses: Businesses that deal primarily in cash are usually high risk. If you want to onboard a cash-intensive business, you need to monitor it more closely.
  4. A client with frequent changes of accountant can be another red flag.
  5. An unusual date of birth for a Beneficial Owner: A Beneficial Owner must be disclosed on RBO records, which should mean that the company owner can’t hide their identity should they be looking to transfer illegal assets via a shell company. Not all Beneficial Owners are in fact real. For example, in the UK there are more than four million businesses on the Companies House register, but around 4,000 people aged two or under apparently own some of these companies, according to a 2018 report from anti-corruption group Global Witness. It is also important to watch out for typos, as some criminals deliberately misspell their name multiple ways to thwart data searches.
  6. A client using an SLP or NILP: Scottish limited partnerships (SLPs) were originally established in the early 1900s for farm holdings, but the business structure has seen a 21st Century revival with criminals using them as shell companies. Following adverse media attention this criminal activity has moved onto NILPs (Northern Ireland Limited Partnerships) instead.

Accountants ought to be able to recognise these signs of money laundering to help safeguard financial systems and preserve the integrity of financial transactions.

To hear more about the latest AML developments and how to be on the alert for suspicions of money laundering and terrorist financing under the Criminal Justice (Money Laundering and Terrorist Financing) Acts 2010 to 2021, see our latest Anti-Money Laundering webinar here.

All our CPD courses are listed here, including our Audit Update webinar.

Please go to our website to see our:

  • Anti-Money Laundering Policies Controls & Procedures Manual (March 2022) — View the Table of Contents here.
  • AML Webinar (December 2023) available here, which accompanies the AML Manual. It explains the latest legal AML reporting position for accountancy firms and includes a quiz. Upon completion, you receive a CPD Certificate of attendance in your inbox.
  • Letters of engagement and similar templates. Please visit our site here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items if bought together.
  • ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please contact John McCarthy FCA by e-mail at john@jmcc.ie.
  • We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. The ISQM TOOLKIT 2022 is available to purchase here.
Four Types of Accountants Who Can Become Ensnared in Economic Crime

Four Types of Accountants Who Can Become Ensnared in Economic Crime

The February 2023 edition of CA Magazine, identifies various types of accountants who may be at risk of becoming entrapped in financial crime. Here we have (adapted from that article) a list of four of the characteristics of those accountants:

  1. The overworked sole practitioner—Sole practitioners are under more pressure to get things done by themselves, which presents challenges for compliance.

2. The accountant with the “tick box” attitude—These accountants view compliance merely as a tick-box exercise; however, the compliance process must be in-depth and have proper risk assessments. The                    “tick box” attitude can also happen to accountants who have clients they know well or clients they’ve had for many years, and do not keep up with the required due diligence

3. The accountant who doesn’t probe hard enough when unearthing something suspicious—Some accountants may not want to investigate further when they see something which might be an issue.                        Accountants generally need to exercise more robust professional scepticism.

4. The small practice approached by a big-shot overseas client—Overseas clients often deliberately target small practices and offer them higher fees (and even offer to pay up front), often hooking accountants who then find it difficult to disentangle themselves with their AML systems already compromised.

Awareness of these characteristics can help accountants be on guard against falling into economic crime.

To hear more about the latest AML developments and how to be on the alert for suspicions of money laundering and terrorist financing under the Criminal Justice (Money Laundering and Terrorist Financing) Acts 2010 to 2021, see our latest Anti-Money Laundering webinar here.

All our CPD courses are listed here, including our Audit Update webinar.

Please go to our website to see our:

  • Anti-Money Laundering Policies Controls & Procedures Manual (March 2022) — View the Table of Contents here.
  • AML Webinar (December 2023) available here, which accompanies the AML Manual. It explains the latest legal AML reporting position for accountancy firms and includes a quiz. Upon completion, you receive a CPD Certificate of attendance in your inbox.
  • Letters of engagement and similar templates. Please visit our site here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items if bought together.
  • ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please contact John McCarthy FCA by e-mail at john@jmcc.ie.
  • We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. The ISQM TOOLKIT 2022 is available to purchase here.
After a Poor AML Inspection Result – 6 Things to Do  (and 2 Things to Avoid)

After a Poor AML Inspection Result – 6 Things to Do (and 2 Things to Avoid)

The scenario: Your firm has had a poor outcome from a recent AML Inspection and urgent remedial action is required.

You may have received a list of significant AML Compliance failings from your professional body which you are required to address within a defined timeline. Sometimes these failings are accompanied by additional points to be addressed before the next review.

The following six items need to be implemented as soon as possible:

Do:

  1. Promptly acknowledge receipt of the correspondence.
  2. If you think you are going to need more time to respond, contact the reviewer immediately and ask for the additional time you need. (You will only get one chance to make this request, and be sure to do so well before the time limit expires.)
  3. Consider carefully whether you need to obtain external assistance to deal with the matters, especially if:
    • You are not confident of your understanding of AML requirements
    • The reviewer has indicated that disciplinary proceedings are a possibility
    • You consider the reviewer’s comments are unfair or unreasonable
  4. Stand back and consider whether the firm’s entire approach to AML Compliance needs a re-think, including your firm’s use (or lack thereof) of an AML Compliance package
  5. Carefully study the reviewer’s criticisms and address them comprehensively in your response, including (if appropriate), revised versions of documents such as the firm’s:
  6. Ensure that all responses are factually correct and meticulously accurate.

DON’T

  1. Delay in responding to the review – be proactive.
  2. Criticise the reviewer’s approach or lack of understanding of your firm – instead take a positive approach and send the reviewer additional information to be considered in support of your case.

Overall, be positive and proactive for a much more successful outcome.

To hear more about the latest AML developments and how to be on the alert for suspicions of money laundering and terrorist financing under the Criminal Justice (Money Laundering and Terrorist Financing) Acts 2010 to 2021, see our latest Anti-Money Laundering webinar here.

All our CPD courses are listed here, including our Audit Update webinar.

Please go to our website to see our:

  • Anti-Money Laundering Policies Controls & Procedures Manual (March 2022) — View the Table of Contents here.
  • AML Webinar (December 2023) available here, which accompanies the AML Manual. It explains the latest legal AML reporting position for accountancy firms and includes a quiz. Upon completion, you receive a CPD Certificate of attendance in your inbox.
  • Letters of engagement and similar templates. Please visit our site here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items if bought together.
  • ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please contact John McCarthy FCA by e-mail at john@jmcc.ie.
  • We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. The ISQM TOOLKIT 2022 is available to purchase here.