ICAEW duty to report misconduct extended to member firms

Last month, as part of its new disciplinary framework, the ICAEW broadened the Duty to Report Misconduct, both in scope (what must be reported) and application (who must report).
 

We blogged on the updates to the previous Guidance on the Duty to Report Misconduct in 2020. Three years later the net has widened further, this time with potentially significant ramifications for ICAEW member firms. 

What must be reported?

Previously[1], there was a twofold test in relation to the duty to report misconduct – ICAEW members were (1) required to report to the ICAEW anything indicating that they, or another member or firm may have become liable to disciplinary action, (2) where it was in the public interest for them to do so. The public interest test has now been removed, so that members, firms, affiliates or relevant persons must now report to the ICAEW any events which may indicate that they, or another member firm, affiliate or relevant person may be liable to disciplinary action[2]. 

The examples of matters that are likely to constitute misconduct (relating to a member’s professional life or work environment in Appendix 1 of the Guidance on the Duty to Report Misconduct, and relating to a member’s personal activities in Appendix 2 of the Guidance) are identical to those in the previous guidance. 

There is therefore no change to the ICAEW’s stance on what would amount to misconduct, but the removal of the public interest factor simplifies the test for assessing whether something should be reported.  The assessment of whether it would be in the public interest to make a report could potentially be complex and multi-faceted, weighing up the seriousness of the alleged behaviour, the circumstances, any personal factors such as the age and health of the person concerned and the impact on the reputation of the profession. This is an assessment which can be carried out by the ICAEW when deciding whether to pursue an allegation: it was unnecessarily burdensome to expect ICAEW members to do this themselves when deciding whether to make a report, so this is a welcome change. 

Who must report?

More significantly, accountancy firms, in addition to individuals, are now obliged to report misconduct by themselves, another ICAEW member, provisional member or firm. 

At first glance, this change may not seem significant – individual members in management positions within an ICAEW member firm were previously under a duty to report misconduct, so why does it matter that this duty has been extended to the firm itself? Where there has been an alleged failure to comply with this duty, either in terms of self-reporting, or reporting others, does it matter that this allegation will now be levied against a firm (likely in addition to individual members)?

In practical terms, an investigation of an alleged failure to report misconduct will involve looking at the awareness and belief of individuals in management positions (i.e did those in management positions know about what is alleged to have happened? If so, did they believe they were under a duty to report this? Was this belief reasonable?). Equally, if the ICAEW pursues allegations before a Tribunal Committee, that Committee will need to hear evidence from individuals in management positions in order to decide whether there has been a breach of the duty to report misconduct. In that respect, extending the duty to firms makes little practical difference.

However, the fact that firms may now face allegations in relation to a failure to report misconduct may be hugely significant in terms of possible sanctions and reputation management. 

Clearly, where previously only individuals were obliged to report misconduct, sanctions could only be imposed against those individuals for an alleged failure to report. Now, sanctions (ranging from a reprimand or caution to a financial penalty or, at worse, a withdrawal of authorisation) may be imposed against a firm which is found to have failed in its reporting duty. Withdrawal of authorisation seems unlikely to be imposed as a result of a failure to report misconduct, but is possible in a case where the failure to report was so significant that it amounted to a cover-up. 

The impact for a firm of being charged with failing to report misconduct may also be significant in reputational terms. In particular, at a time when there is an increased focus on sexual misconduct and economic crime, any suggestion that a firm was aware of misconduct of this nature within its ranks, but failed to report it, may have a huge impact on the public’s perception of the firm. 

What should firms do in light of this?

Firms should already have policies and procedures in place in relation to reporting concerns and whistle-blowing, alongside regular and effective supervision and file reviews. This would be a good time to review those systems and processes, to ensure that they are sufficiently clear and robust. It is equally important to foster a culture within your firm which encourages individuals to report concerns and speak up when mistakes are made.

If you are considering whether to make a report to the ICAEW in relation to potential misconduct, our dedicated team can advise you on this process and how to ensure that it is robust and capable of scrutiny. If you ultimately decide to make a report, we can also advise on the content of this. The form, tone and content of a self-report should be considered carefully as it may become a vital part of any forthcoming disciplinary process. Please contact our dedicated team for more advice and guidance.