In August, the UK’s Financial Reporting Council (FRC), a regulator with responsibility for auditors, accountants and actuaries, issued its first annual enforcement review. The review summarises the FRC’s investigatory and enforcement remit and powers, as well providing details on recent cases and the FRC’s priorities.

In 2018/19, the FRC referred 15 enquiries to enforcement investigation (2017/18: 14) and concluded 13 investigations (2017/18: 9). Of the 13 concluded investigations, eight were settled, four were determined by the Tribunal and one closed with no further action. The FRC also resolved 19 enquiries in 2018/19 through Constructive Engagement (resolving cases without referral to enforcement investigation, involving remedial action agreed with the firm).

The quantum of financial sanctions increased significantly in 2018/19, totalling £32M (inclusive of settlement discounts) compared to £13.1M in 2017/18. The largest individual fine was £6.5M (inclusive of settlement discounts). Exclusions from professional bodies also increased (six in 2018/19 compared to two in 2017/18). The average time to complete enforcement was 42 months for settled cases and 82 months for cases referred to the Tribunal.

The review identifies three high level issues arising from recently concluded enforcement cases: (i) integrity; (ii) objectivity and independence; and (iii) professional competence and due care in relation to audit evidence and professional scepticism. It also specifically mentions quality control partner review and variations in audit quality in regional offices as enforcement themes.

The FRC currently has 41 open investigations. It has increased its enforcement staffing by 25% and “significant further expansion is planned”.

As we have previously reported, the FRC will be replaced by a new regulator, the Audit, Reporting and Governance Authority (ARGA). The review acknowledges that the FRC is in a transitional period and steps are being taken to “assist in laying the groundwork for change and effective reform”.