9 Apr 2018
Published: The Accountant
By Joe Pickard
The Financial Reporting Council (FRC), the UK’s independent regulator, has published updated guidance for the Tribunal that hears FRC Enforcement cases involving auditors, accountants and actuaries.
The updated guidance has implemented the recommendations which were provided by a publication by an independent review of the sanctions in October 2017. The review was undertaken by a panel chaired by former Court of Appeal for England and Wales judge Christopher Clarke.
The key recommendations of the review included:
– An increase in fines to £10m (US $14.1m) or more for seriously poor audit work by a Big 4 firm.
– Exclusion from the accounting profession for a minimum of 10 years for dishonesty.
– Greater use of non-financial penalties.
– Sanctions that reflect the level of cooperation by respondents.
Alongside the sanctions, guidance was also published to best inform the Tribunal on when to impose the sanctions upon a member or member firm.
The report offered reasoning that sanctions should not just be issued as punishment for the member or the member firm but also to assert the credibility of the profession. When determining the amount of a fine to be issued the report stated that the tribunal should consider how it will ‘promote the public confidence in the regulation of the accountancy profession’.
The guidance recommends the Tribunal to exclude a member from the accounting profession when the level of misconduct is ‘so damaging to the wider public and market confidence’ in the conduct of members, the accountancy profession and the quality of the corporate reporting in the UK.
The report offers guidance on certain mitigating factors for the Tribunal to consider before imposing sanctions. These include whether the member firm has had a previous history of misconduct, if a member held a junior position, and if the member or member firm was not intending to profit from the misconduct.
While it is considered a mitigating factor if the member or member firm reported the misconduct to the FRC, cooperation with the FRC’s tribunal is not considered a mitigating factor in itself. Only extreme cooperation will be considered as a mitigating factor as there is already requirement of the member or member firm to cooperate with an investigation.
The FRC’s updated sanctions guidance will take effect on 1 June 2018.