1. Page 1 | Proprietary and Copyrighted Information M G Rover and the Public Interest Richard Fleck, IESBA Member IESBA Meeting New York June 29 – July 1, 20 15

2. Page 2 | Proprietary and Copyrighted Information Background M G Rover –Long established motor manufacturing company –Large number of employees –Recipient of Government support –Bought from BMW for £10 by 4 individuals (‘Phoenix Four’) who positioned themselves as ‘white knights’ –Company collapsed –Transpired that Phoenix Four had siphoned off assets

3. Page 3 | Proprietary and Copyrighted Information Government Investigation Deloitte’s multiple roles criticised –Auditors –Advisors to Companies –Advisors to Phoenix 4 Disciplinary proceedings brought against Deloitte and key partner by Financial Reporting Council M G Rover Background

4. Page 4 | Proprietary and Copyrighted Information Tribunal found deliberate misconduct and imposed £14m penalty Deloitte appealed Appeal allowed in part and penalty reduced to £3m M G Rover Background

5. Page 5 | Proprietary and Copyrighted Information The misconduct charges arose from the advice given by Deloitte to the Phoenix Four in their personal capacity in relation to: –Project Platinum – a scheme which related to the sale of MG Rover’s car loan book; and –Project Aircraft – a scheme to generate returns from MG Rover’s tax losses. As a result of these schemes, the Phoenix Four received a personal benefit of £40m, notwithstanding the failure of MG Rover M G Rover The Misconduct Charges

6. Page 6 | Proprietary and Copyrighted Information The importance of the disciplinary proceedings arises from the debate and findings in relation to the charge that Deloitte failed to have proper regard to the Public Interest The applicable ICAEW Ethical Guides (2000 and 2002) contained –A Fundamental Principle of Objectivity –Guidance (to help members fulfil Fundamental Principles) advising Members to consider, inter alia, “The Public Interest and its bearing on work” M G Rover The Misconduct Charges

7. Page 7 | Proprietary and Copyrighted Information The Guides contained advice on how to assess the public interest –“The public interest should be a factor which all members should bear in mind when accepting any assignment or appointment The disciplinary charges focussed on the failure of Deloitte “adequately to consider the public interest before accepting or continuing their engagement in relation to Project [Platinum] (in particular as corporate advisers to the Phoenix Four) M G Rover The Misconduct Charges

8. Page 8 | Proprietary and Copyrighted Information The factors to be taken into account should have included: –Phoenix Four was receiving public (Government) support –Funds were needed to ensure the solvency of MG Rover –Employees etc had a financial interest in MG Rover’s survival –Deloitte was, or was perceived to be acting on behalf of MG Rover for the public good (see public statements) –Contrary to the statements by the Phoenix Four and Deloitte, the two transactions were being used to generate substantial profits for the Phoenix Four M G Rover The Misconduct Charges

9. Page 9 | Proprietary and Copyrighted Information Deloitte argued that –It was not required to consider the public interest That MG Rover was a private company controlled by entrepreneurs who were entitled to make profit –The public interest was fulfilled by it carrying out its duties robustly representing its clients –The case against it represented a dramatic and retrospective alteration of the basis on which accountants act for their clients M G Rover The Misconduct Charges

10. Page 10 | Proprietary and Copyrighted Information In response, it was alleged that Deloitte should have: –Considered and recorded the public interest and whether the projects were in the interest of MG Rover and the public good; and –Considered and recorded the likely perception of their role; and –Declined (or ceased) to act when it became clear that the Phoenix Four were involved for personal gain; or –Made it clear that it was not acting for MG Rover, have obtained specific consent from MG Rover to act for the Phoenix Four, and have advised MG Rover to obtain separate advice M G Rover The Misconduct Charges

11. Page 11 | Proprietary and Copyrighted Information The Tribunal found the disciplinary charges proved as it found that: –Deloitte was aware that MG Rover and the projects involved the public interest –The public interest was relevant to Deloitte as a member firm (providing corporate finance advice) M G Rover The Disciplinary Tribunal

12. Page 12 | Proprietary and Copyrighted Information Important to appreciate that an Appeal Tribunal cannot assess whether evidence that is disputed should be relied unless that evidence was the subject of a valid finding of fact by the Tribunal (i.e. the Appeal Tribunal cannot make good deficiencies in the Tribunal decision unless the evidence is undisputed) The Appeal turned on the relationship between the requirement to consider the public interest and the consequences that flowed from any failure to do so MG Rover The Appeal Tribunal

13. Page 13 | Proprietary and Copyrighted Information The Appeal Tribunal: –Endorsed the provisions in the ICAEW Ethics Guide relating to the public interest –Found that the Guide did not give guidance as to how the public interest should bear on the decision of an accountant to accept an assignment –Accepted that MG Rover was a ‘public interest’ company and that its survival was a matter of public concern –Found that the Tribunal failed to determine what Deloitte did or failed to do because it failed to consider the public interest – and did not identify what was wrong with taking profits or assets out of MG Rover MG Rover The Appeal Tribunal

14. Page 14 | Proprietary and Copyrighted Information The Appeal Tribunal: –Found the Guide ‘unhelpful’ in this regard; –Found that the requirements of the Guide alone could not form the basis of a finding of misconduct; –Found that it does not follow that a failure to consider the public interest results in an accountant acting with a lack of objectivity; and –Found that the Disciplinary Tribunal made no finding that Deloitte failed to act objectively MG Rover The Appeal Tribunal

15. Page 15 | Proprietary and Copyrighted Information It is important to appreciate that the outcome was affected by the limited role of the Appeal Tribunal – it could not supplement the Disciplinary Tribunal decision and make good the deficiency in that Decision The Guides being considered have been significantly changed – the requirement to consider the public interest in the context of the Fundamental Principle of Objectivity Consideration of the public interest is a stand-alone responsibility. The Guide describes what acting in the public interest involves – including not acting exclusively in the interests of a client M G Rover Reflections

16. Page 16 | Proprietary and Copyrighted Information The ICAEW has published a report – “Acting in the Public Interest: A framework for Analysis” IFAC has issued a position paper – “A Definition of the Public Interest” M G Rover Reflections

17. Page 17 | Proprietary and Copyrighted Information Although IESBA has no responsibility for the enforcement of its Code (that is the responsibility of Member Organisations or other oversight bodies), it will be important to consider whether the Code provides adequate guidance as to how the responsibility to act in the public interest (as established by 100.1) should be (i) considered and (ii) applied in the context of an accountant’s ethical responsibilities. M G Rover Conclusion

18. The Ethics Board www.ethicsboard.org