Audit firms to report to FRC on staff misconduct

From October, the six largest audit firms will be required to provide the Financial Reporting Council (FRC) with regular updates on any instances of bullying and harassment, and details of action taken, in the wake of a series of scandals involving senior staff

The regulator has written to the firms setting out its expectations for the reporting of non-financial conduct.

As a first step, the six firms - PwC, Deloitte, EY, KPMG, BDO and Grant Thornton - have been given five weeks to supply details of their current policies and procedures in relation to internal whistle-blowing, grievances, disciplinary matters and complaints from individuals outside the firm.

The deadline for providing this information is 30 August, and the FRC says it wants to know how firms handle bullying and harassment, discrimination and alcohol/ substance abuse.

Firms are asked to provide extracts from intranet pages that provide guidance to partners and staff applicable and relevant extracts of board reporting packs.

Going forward, the FRC is to set up a process for the regular reporting of the level of non-financial conduct complaints and how those complaints are dealt with, on a quarterly basis starting from the quarter ending 30 September.

The regulator says this will help provide an indication of how effective the firms’ procedures are, , along with a picture across the industry of potential emerging areas of concern. The first reports are due by 11 October.

In addition to the regular quarterly reporting, firms are also expected to notify the FRC of any non-financial conduct incidents which could pose a threat to the

reputation the UK firm. The regulator says it is up to the firm to determine which matters are ‘significant’, but this is requirement covers all partners of the firm, not just audit partners and responsible individuals.

The FRC’s move follows disclosures from the Big Four at the end of last year revealing 37  UK partners had been fired over bullying and harassment issues since 2014, and the resignation this year of two female partners at KPMG over claims the firm had failed to take adequate action in tackling accusations of bullying by Sanjay Thakkar, the firm’s head of deal advisory.

FRC letter on non-financial conduct reporting

Pat Sweet | 24-07-2019

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