PKF Littlejohn LLP Transparency statement

PKF Littlejohn LLP Transparency Report  2017

We are pleased to present our Transparency Report for the year ended 31 May 2017 designed to give information on the ownership and governance of the firm and the measures we take to maintain independence and 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 30 June 2017 there were 11 full equity and 24 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. We offer 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.  In addition through its partnering arrangements with Capitalise (www.capitalise.com/) and Escalate (www.escalatedisputes.co.uk/ ) the firm offers funding solutions and dispute resolution services for SMEs.

We have four principle active subsidiary companies:

  • PKF Geoffrey Martin & Co Limited which specialises solely in business recovery, turnaround, fraud investigation 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 to certain clients.
  • West Ferry Business Solutions the funding solutions and dispute resolutions services.

West Ferry Business Solution has entered into a joint venture agreement with Moore Batch LLP and Harber Business Services Limited (a company under common control with Bermans 2012 Limited) to deliver the dispute resolution services referred to above.

Regulation

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 practice assurance reviews by the Quality Assurance Department (QAD) of the ICAEW and a full and limited audit assurance reviews on alternate years. The QAD carried out a full audit monitoring visit and a whole firm practice assurance review in 2015 and a limited audit assurance review in 2016.  The next practice assurance review by the QAD is due in November 2017.

With effect for financial years commencing on or after 17 June 2016, the firm will be statutory auditors to entities now defined as public interest entities.  As such the firm will also be subject to monitoring by the Audit Quality Review Team of the Financial Reporting Council.

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.  Directors and associates of PKF Geoffrey Martin & CO Limited who act as insolvency practitioners are individually authorised and regulated either by the Insolvency Practitioners Association or the ICAEW, both Recognised Professional Bodies recognised by the Insolvency Service (and executive agency of the Department for Business, Energy and Industrial Strategy), which is the ultimate regulator of the insolvency profession.  Practitioners are typically inspected on a cycle basis.  Practitioners were last inspected in 2014 and 2016 with other practitioners due to be inspected later in 2017.

Public Interest Entities

A list of the public interest entities in respect of which an audit report has been made in our financial year 2015/16 is set out at Appendix 1.

The aggregate audit fees and fees for other services (as shown in their last published financial statements) in respect of the above public interest entities were £394,180 (previous year £319,069).

PKF International Network

Introduction

The firm is a member firm of the PKF International (PKFI) family of legally independent firms providing assurance, accounting, taxation and business advisory services worldwide.

Statistics

The PKFI Network comprises member firms and correspondents in over 400 locations operating in 150 countries across five regions.  PKFI member firms had £0.75bn (US$1bn, €0.9bn) aggregate fee income (of which £0.417bn ($0.563bn, €0.507bn) related to audit and accounting), and approximately 14,000 employees as at 30 June 2016.

An up to date list of member and correspondent firms, including the firm names and countries in which they are registered and operate from, can be found on the website www.pkf.com.

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 objective of the Forum is to promote consistent and high quality standards of financial reporting and auditing practices worldwide.  The Forum brings together firms that perform transnational audits and involves them more closely with the activities of the International Federation of Accounts (IFAC) in audit and other assurance related areas.    Currently the Forum has 27 members, and its Chairman is PKF International’s Theo Vermaak.  For more information see http://www.ifac.org/about-ifac.forum-firms-and-transnational-auditors-committee.

Legal form of the central network organisation

The Network is formed by PKF International Limited, a private company registered in England and limited by guarantee (the Licensor or the Company) and the member firms (the Licensees).

The Network is regulated by adherence to an Operating Licence Agreement (OLA) between the Licensor and Licensees.  The OLA authorises a Licensee to use the PKF name as defined under specific circumstances and conditions for specific purposes and in a specific territory.  In consideration Licensees pay a licence fee to the Licensor.

The Company’s Articles of Association require a board of directors (the International Board) who 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 Company has no financial or management interest in any member firm and none of the directors of the company or other officers has a financial or management interest in any member firm other than his or her own.

Responsibility and Liability

Each Licensee is a legally independent entity owned and managed separately.  Contractual relations are only formed between a client or other party and the member firm engaged by the client or by or with the other party.  No other member firm may be held liable.

PKF Littlejohn does not accept any responsibility or liability for the actions or inactions on the part of any other individual firm or firms within PKFI.

PKF International Limited does not accept any responsibility or liability for the actions or inactions on the part of any individual firm or firms within PKFI.

Structure

Member firms are organised into five separate geographical regions – Europe, Middle East and India (EMEI), North America & Caribbean, Latin America, Africa and Asia Pacific (including Oceania).

Each region has a Regional Board an elects or nominates representatives to serve on the Company’s board of directors.  The Chairman of each Regional Board is normally a member of the International Board.

The International Board appoints a global CEO who reports to the International Board and International Chairman.  Regional Directors for each region are appointed by the CEO in consultation with the Regional Boards.

The International Board meets four times a year and otherwise monthly by tele conferencing.  Regional Boards meet either in person or via conference call as required.

Committees

There are two international committees responsible for professional and practice standards – the International Professional Standards (including Assurance) (ISPC) and International Tax Committees.  Each region is represented on those committees, which report to the international board on a regular basis. A number of additional practice area committees operate nationally, regionally and internationally.  The Company’s board has also established a number of sub- committees and working parties to address the Network’s affairs.

The principal objectives of the IPSC encompass three focus areas:

  1. Quality assurance (see below) – to establish and communicate general practice standards and standards for the performance of professional work and to monitor the general practice standards and quality of the work of Member firms.
  2. Member firm support – assurance and accounting – to maintain practice aids and software, manuals and templates and make available training material and arrange training sessions.
  3. Global regulation of the PKFI Network – monitoring regulatory and legal developments and contributing to international (including legal) developments and debates relevant to the profession and accounting.

The International Tax Committee co-ordinates publication of the PKF Worldwide Tax Guide and technical newsletters arranges the International Tax Meeting and facilitates resource sharing among member firms.

Quality Assurance

PKFI operates a global monitoring 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 established 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.  The standards expected of member firms must comply with International Standards on Quality Control 1 (ISQC1).

Member firms are required to submit an annual Member Firm Compliance Report to PKFI, as well as an annual Firm Profile Report.

PKFI distinguishes between member firms and exclusive / non-exclusive correspondent firms.  Correspondent firms do not form part of the Network as defined by the Code of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants (IESBA)., have none of the rights and privileges of member firms and are not covered by the global monitoring programme.

Independence

At the heart of PKFI’s approach to managing independence is the Transnational Entities Database (TREND), part of the Network’s proprietary platform for global co-ordination and communication.  A secure central repository of member firms’ transnational client details accessible by all PKF firms.  The transnational entity listing (including transnational audits) is continually updated and its accuracy and completeness confirmed annually.

Global gathering

The Network holds an annual Global Gathering for all member firms and an annual international assurance and international tax meeting.   Each region holds its own gatherings to address matters of regional interest.

PKF Littlejohn Management

The firm is managed by a board, concentrating on strategic matters and reporting and accountable to the partnership as a whole.  The current board comprises a Managing Partner and Chairman who are elected by the partners and one further partner appointed by the Managing Partner from time to time as well as an independent non-executive board member appointed by the Board.  As at July 2017 the board comprised:

Carmine Papa  (Managing Partner)

Mark Ling         (Chairman)

Neil Coulson

John Wallace (Independent Non-Executive board member)

The day to day running of the firm is handled by a leadership group which is appointed by the Managing Partner and which is accountable to the board and ultimately the partnership as a whole.

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.

Partner remuneration

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.

The weighting attributed to these factors varies according to the circumstances of individual partners and the needs of the firm determined by management from time to time.

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 leadership group 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.

Financial information (Group)

 

Year ended
31 May 2016
(£m) 

Year ended
31 May 2015
(£m) 

Statutory audit fees

8

8

Fees for non audit services to audit clients

2

3

Fees for non audit services to non audit clients

13

8

Total revenue

23

19

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:

Leadership responsibilities

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 managing partner.  To avoid the possibility of management override the PSC has whistle blowing responsibilities both to the board and the overall partnership. The firm has also appointed ethics, money laundering, complaints and practice assurance partners who report directly to the managing partner but are also to report to the PSC as appropriate on the firm’s compliance with those areas which they are responsible for.

The PSC operates primarily by publishing internal professional standards notes a, 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.

Ethical requirements

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.  The decision of the Ethics Partner 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.

Human resources

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.

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.

Details of the mandatory training for relevant staff are as follows:

  • account and audit updates
  • tax updates
  • anti-money laundering (all staff)
  • anti-bribery and corruption training
  • other technical based training as appropriate for staff specific members of staff

The firm is an accredited training office with the ICAEW, 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.

Engagement performance

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.

Monitoring

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.

For audit work and other work partners must achieve a benchmark score on review of 85% or above.  The firm’s average achievement against the benchmark was 87%.  Tailored remedial action is taken if scores are below 85%.

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.

The firm is also subject to review by the European Court of Auditor on those services provided to the European Union or its institutions.

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.

 

Carmine Papa
Managing Partner
For and on behalf of PKF Littlejohn LLP

31 August 2017