CA ANZ members voted to amend the CA ANZ by-laws and NZICA rules in 2023, following the changes recommended by the Professional Conduct Framework Review. Some of the important changes were those relating to firms, which were aimed at improving firm accountability, and the disciplinary procedures and powers for complaints concerning firms.

Since then, several firm events have been disclosed to the Professional Conduct Committee (PCC).

“The changes have made it explicit that the PCC has the power to investigate and discipline members who are a principal of a practice entity that has suffered, experienced or been the subject of a firm event. It is now clear that this is an offence under the by-laws and rules,” says Kate Dixon, Australian conduct leader, CA ANZ.

The term ‘firm events’ defines the types of issues related to practice entities that create obligations under the by-laws and rules, regardless of whether the practice itself is a member. This includes the obligation to notify the PCC of the firm event.

“When a member becomes aware of a firm event, they have an obligation to notify the PCC within seven days. Members are also given the opportunity to disclose firm events via the notifications declaration they make as part of the annual membership subscription renewal process.

“This obligation applies to every principal of the firm. Firm principals can also appoint a notifying principal to make notifications on their behalf and to represent them for the purposes of any subsequent investigation,” says Dixon.

The head of CA ANZ’s professional conduct team in New Zealand, Rebecca Stickney, says the NZICA rules have also been updated to allow practice entities in New Zealand to voluntarily become CA ANZ members, which is similar to the system in Australia.

“It means that firms can opt to take responsibility for handling complaints, just like individual members do,” she says. “However, if a firm does not choose to become a member, the principals of the firm still have to take responsibility for certain ethical issues under the firm event rules.”

Examples of firm events

The types of things that must be disclosed to the PCC regarding firms include criminal or statutory offences by the firm and binding determinations by other regulators or the courts against a firm.

“This could include a finding of dishonesty or any unfavourable determination about a firm’s business conduct, competence or integrity,” says Stickney.

For instance, a firm might be found in civil proceedings to have misrepresented information or prepared misleading reports.

“Importantly, practices should be alert to the fact that adverse issues involving sexual harassment, bullying or an employment-related matter, where there is criticism of the actions of the firm and a binding case against the firm, need to be brought to our attention,” she says.

Other examples include conditions or restrictions on professional membership, registration or licensing. In New Zealand, this could involve unfavourable findings from regulators such as the Financial Markets Authority, says Stickney.

“It might also include findings from Inland Revenue in New Zealand, or the Tax Practitioners Board in Australia, or an international regulator impacting a firm within a broader global group,” she says.

Finally, a firm’s inability to meet its financial obligations is a firm event.

“Since the changes were made, we have had several firm events that have been disclosed, including where an adverse or unfavourable binding determination has been made in connection with a firm,” says Dixon. “In one example, the firm was a defendant to the proceedings and there was judgment against them.

“We’ve also had examples where regulators have made a decision in relation to a firm, as well as some events where practice entities have become insolvent.”

At this stage, no firm events have been disclosed in New Zealand, however practice entity insolvency events have been investigated, Stickney says.

“As soon as the principals of the firm become aware of an issue, they need to be considering their obligations.”

Understanding the rules

While the minimum obligation under the by-laws and rules is to disclose a firm event within seven days, being on the front foot can help manage risks and demonstrate proactive compliance. “Members need to think carefully about what their obligations may be and, if necessary, take advice,” says Stickney.

“As soon as the principals of the firm become aware of an issue, they need to be considering their obligations,” says Dixon. “It’s important that the disclosure happens within the required timeframe,” she adds.

“Practices should start by understanding the by-laws and rules, and considering whether they need a notifying principal,” advises Stickney. “It’s important to get a clear understanding of what a notifying principal role is and also the different practice entity membership options, including ongoing membership or opting in for a specific complaint.”

Once the disclosure has been made, or the PCC becomes aware of a firm event from publicly available information, it will work with the firm to determine if they will have one representative acting on their behalf, if the firm wishes to opt into voluntary membership for the particular firm event or if the PCC needs to communicate with all the principals.

“If the case is to be investigated, it will follow the usual process,” says Dixon.

Another important point is that in New Zealand, licensed audit firms have additional continuous disclosure obligations under the Auditor Regulation Act, says Stickney.

“These obligations may overlap with the firm event requirements but they must still be observed. If there is any uncertainty, we are more than happy to answer enquiries,” she says.

Disciplinary action

Under the changes, the penalties that may apply have also been strengthened.

“One key aspect of these changes is the distinction between sanctions applied to firms, versus individual members,” says Stickney. “For firms, fines can go up to $100,000 at the PCC, to $250,000 at the Disciplinary Tribunal (DT) and Appeals Council (AC). Whereas, for individual members, the maximum fine is $25,000 at the PCC and $50,000 at the DT/AC,” she says.

In addition, the PCC and – if the matter is serious enough – the DT, will consider the most appropriate, efficient and timely process to investigate and determine a complaint, says Dixon.

“Other sanctions include a requirement for a practice review or quality review, or for additional fees to be imposed. Principals may also be required to undergo training or quality reviews,” she says.

Take away

See our by-laws online, for more details.