We are pleased to present our Transparency Statement for 2016, designed to give information on the ownership and governance of the firm and the measures we take to maintain high quality standards in our audit and other services.
Legal structure and ownership
PKF Littlejohn LLP is a limited liability partnership governed by the terms of its Members' Agreement and is owned by its equity partners. As at 1 March 2016 there were 12 full equity and 27 fixed equity partners.
The firm operates from its offices at 1 Westferry Circus, Canary Wharf, London E14 4HD and 4 Carlton Court, Brown Lane West, Leeds, LS12 6LT. The firm offers a range of services comprising business advice, audit, accountancy, internal audit, taxation (corporate and personal), corporate finance, IT consultancy, litigation support, business recovery, turnaround and insolvency services.
We have three active subsidiary companies:
- PKF Geoffrey Martin & Co Limited which specialises solely in business recovery, turnaround and insolvency services.
- PKF Littlejohn Payroll Services Limited which is managed on our behalf by PKF Cooper Parry, Chartered Accountants from its Birmingham office. Its principal activity is the provision of outsourced payroll services.
- PKF Littlejohn Accounts Limited. Its principal activity is the provision of accounting and tax services.
PKF Littlejohn LLP is a Registered Auditor and is regulated in the conduct of its services by the Institute of Chartered Accountants in England & Wales (ICAEW), including as a Designated Professional Body for investment business. The firm is subject to periodic audit and whole firm practice assurance reviews by the Quality Assurance Department (QAD) of the ICAEW. The QAD carried out an audit monitoring visit and a whole firm practice assurance review in 2015.
The firm acts for a number of clients audit clients listed on the AIM and ISDX markets and one fully listed client.
The firm is also registered with the Public Company Accounting Oversight Board and the Canadian Public Accountability Board to undertake audit work in connection with US and Canadian listed entities respectively.
PKF Geoffrey Martin & Co Limited is registered with The Insolvency Service which is responsible for authorising and regulating the insolvency profession, as well as the ICAEW, The Insolvency Practitioners Association (IPA) and R3 - The Association of Business Recovery Professionals. Practitioners are authorised individually by either the IPA or ICAEW.
PKF International (PKFI)
PKF Littlejohn LLP is a member firm of PKF International Limited, a global family of legally independent firms offering a range of professional services including auditing and accounting, taxation and business consulting.
PKFI has 200 member firms and correspondents located in 440 cities, operating in over 150 countries on 5 continents. PKFI member firms have an aggregate fee income of £1.5bn (US$2.3 €2.1 million) (source: IAB World Survey 2015).The network is a member of the Forum of Firms - an organisation dedicated to consistent and high quality standards of financial reporting and auditing practices worldwide.
The PKFI network is regulated by adherence to an Operating Licence Agreement (OLA) signed on behalf of the network by a Licensor and each member firm (the Licensee). The form of the OLA authorises the member firms to use the PKF name as defined under specific circumstances, under specific conditions, for specific purposes (The Business) and in a specific territory (The Territory).
THE LICENSOR, acting on behalf of PKFI, is a company registered in England and limited by guarantee (the Company). The Company's Articles of Association require a Board of Directors to conduct the business of the Company. The Board has a strategic and co-ordinating role but has no executive authority over the operations of individual member firms.
THE LICENSEES. Each Licensee is a legally independent entity owned and managed in each location. Contractual relations are only formed between a client and the member firm engaged by the client and no other member firm may be held liable. PKFI has no financial or management interest in any member firm. None of the directors of PKFI has a financial or management interest in any member firm other than his or her own.
PKF Littlejohn LLP and its subsidiaries do not accept any responsibility or liability for actions or inactions on the part of any other individual member firm or firms within PKFI including correspondents.
Member firms are organised into five geographical regions. Each region elects or nominates representatives to the PKFI Board of Directors.
There are six international committees - Professional Standards, Tax, Corporate Finance, Business Development, Hospitality Consulting and Corporate Recovery & Advisory, each of which is central to the development of the PKF brand throughout the world.
PKFI operates a globally directed quality assurance programme covering member firms. The principal objectives are to ensure that the standards expected for the performance of certain types of professional work by member firms are promulgated and communicated to firms, that those standards meet appropriate recognised professional practice requirements at least for transnational and referred work, and that a programme of monitoring of compliance with expected standards is operating effectively.
PKFI distinguishes between member firms and correspondent firms. Correspondent firms have none of the rights and privileges or responsibilities of member firms and are not covered by the globally directed quality assurance program. An up to date list of member and correspondent firms can be found on the website www.pkf.com.
PKF Littlejohn Management
The firm is managed by a board of partners, concentrating on strategic matters and reporting and accountable to the partners as a whole. The board comprises a managing partner who is elected by the partners and two further members also elected by the partners. Other members of the board are appointed by the managing partner. As at 1 March 2016 the board comprised:
Carmine Papa (Managing Partner)
Mark Ling (Chairman)
Simon Slater (an independent, non executive director who is not a member of the LLP).
The day to day running of the firm is handled by a leadership group.
Professional indemnity insurance
PKF Littlejohn LLP maintains professional indemnity insurance, including for its subsidiaries, in full compliance with the Professional Indemnity Insurance Regulations issued by the ICAEW.
Partners are remunerated wholly out of the profits of the firm as follows:
Full equity partners - profit shares are reviewed on a regular basis (normally every two years) by a remuneration committee appointed by the partners. The assessment takes into account partners' performance assessed against criteria covering client service, technical skills, working capital management and management responsibilities.
Fixed equity partners - fixed equity partners receive a fixed share of the profits as a first charge on the overall profits of the firm. These fixed shares are normally reviewed every two years and are determined by the board, subject to the review and recommendations of the remuneration committee. The assessment of the board is based on similar criteria to those described above.
From time to time, full and fixed equity partners may be awarded bonuses in addition to their profit share for exceptional effort and performance. Eligibility for bonuses is assessed by the board and is subject to the approval of the full partnership. Having regard to auditor independence, partners are not incentivised to gain non audit work from audit clients.
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Quality control system
PKF Littlejohn LLP has established a quality control system that encompasses the six elements of quality control embedded within International Standard on Quality Control (UK and Ireland) 1 (ISQC1), which deals with a firm's responsibilities for systems of quality control for audits and reviews of financial statements and other assurance and related engagements.
The elements of quality control set out in ISQC1 have relevance to all services provided by the firm and the firm has applied them as follows:
Responsibility for the effective operation of the quality control system lies with the managing partner who is accountable to the board and the partnership as a whole.
Professional standards and procedures are set by our professional standards committee (PSC), reporting to the board. To avoid the possibility of management override the PSC has whistle blowing responsibilities both to the overall partnership and to our professional body. The firm's ethics partner is a member of the PSC and the audit compliance/practice assurance partner attends all meetings.
The PSC operates primarily by publishing professional standards notes and technical notes, which set out the standards that the firm must meet in order to comply with ISQC1 and other professional standards. The PSC also monitors compliance and receives reports from the monitoring of quality (see below) and makes recommendations for improvement to the managing partner. Responsibility for implementing the firm's professional standards lies with departmental heads and line managers.
The firm's professional standards note covering independence sets out the following:
- adherence to the ICAEW's Code of Ethics and Ethical Standards issued by the Auditing Practices Board (APB) takes precedence over commercial considerations.
- partners and managers are required to keep independence issues under constant review and, in respect of audit assignments, reconfirm the firm's independence having regard to the APB's Ethical Standards, prior to the commencement of every audit.
- all members of the firm are required to complete an annual declaration of their independence and freedom from conflicts of interest.
- the ethics partner must be consulted on all questions related to independence and professional ethics. His decision on each matter is final.
- instances of non-compliance with the firm's procedures must be reported to the ethics partner and the managing partner.
The requirement to comply with the ICAEW's Code of Ethics and the APB's Ethical Standards is set out in the staff handbook and forms part of employees' contracts of employment. The requirements for the partners to comply are contained in the Members' Agreement.
Acceptance and continuance of client relationships and specific engagements
The firm has detailed procedures covering the acceptance and continuance of client relationships and new specific engagements. A comprehensive client acceptance form must be completed prior to acceptance of every appointment. This requires identification of the prospective client, an assessment of our independence and freedom from conflicts of interest, an assessment of whether the firm has the requisite skills to carry out the engagement and an assessment of the risk the prospective client would present to the firm.
Upon acceptance of a new client or a specific engagement from an existing client, the firm issues a detailed engagement letter for agreement by the client, setting out, inter alia, our understanding of the nature of the assignment and what is required of us and our standard terms of business.
We have established policies and procedures to ensure that our people are equipped with the required technical skills and reflect our values of commitment to client service and high professional and ethical standards, covering objectivity, integrity and independence.
The firm sets high standards for the recruitment and promotion of personnel, in particular with regard to the selection and interview of candidates and the qualifications required. Partners are involved in all interviews and references are always taken, including verification of membership of professional or regulatory bodies.
All personnel undergo regular appraisals dealing with past performance, future development and training needs.
Audit staff receive performance appraisals at the end of each significant assignment, which feed into their six monthly appraisals.
The firm adheres to the requirements of the ICAEW for continuing professional development (CPD). Responsibility for providing full support for the development needs of individuals lies with the board, exercised through our HR development department, which is headed by the technical and training partner.
The training programme is informed by new technical developments, the identification of training needs through appraisals and a review of CPD records maintained by staff.
The firm provides:
- dedicated technical support staff
- a technical library, including on line resources available via the firm's intranet
- manuals setting out the firm's procedures for all audit and assurance engagements as well as other services provided by the firm
- membership of the Faculties and Special Interest Groups of the ICAEW and dissemination of their guidance and bulletins to audit partners and staff
- subscription to the email update service of the Financial Reporting Council, enabling early access, inter alia, to the output of its two main divisions dealing with Codes and Standards and Conduct, which is disseminated to audit partners and staff
- regular and externally provided update training for partners and staff dealing with current developments in accounting, auditing and tax
- internal training courses tailored to the specific roles of individuals at each stage of their careers (e.g. audit assignment leaders course)
- ad hoc internal and external training to meet specific needs.
The firm is an accredited training office with the ICAEW, the Institute of Chartered Accountants of Scotland, the Association of Certified Chartered Accountants and the Association of Accounting Technicians. The progress of students studying for their professional qualifications with these and other bodies (for example, the Chartered Institute of Taxation) is carefully monitored, with each student being closely supported.
The firm's procedures for engagements are set out in comprehensive manuals developed by the firm. In respect of audit and assurance engagements we use proprietary audit programmes and have developed our own programmes for specialist audits.
All professional work is subject to review by managers and partners, with clear guidelines laid down for second partner consultation and hot review and the use of external experts where required.
We engage external reviewers to monitor the quality of audit, assurance and tax work, as well as other services provided by the firm. Audit reviews take place eight times per annum with reports delivered to the PSC and the Audit Compliance Partner.
Our external reviewers also carry out an annual whole firm practice assurance review.
The results of the reviews, as well as those by the QAD, are used to inform improvements to our procedures and are fed into our internal training programme. Where appropriate and considered necessary, the PSC will issue Quality Control Monitoring Alerts to bring to the attention of partners and staff any matters that need to be addressed.
Statement of effectiveness
Based on the results of the monitoring, we are satisfied that our quality control system is operating effectively to ensure that we comply with professional standards and deliver a quality service to our clients.
For and on behalf of PKF Littlejohn LLP
1 March 2016