Poor performance by audit firms led to the regulator issuing record fines of £33.2m for audit misconduct in 2022-23, up slightly from £32.8m the previous year
Once legal costs were factored in, auditors had to pay out £40.4m in 2023 to the Financial Reporting Council (FRC). The amount of fines doled out hit £33.2m, £400,000 more than the previous year.
Back in 2020-21, fines totalled just £19m. The FRC has been enforcing higher standards for audit work following a spate of corporate collapses, where auditors have been accused of ignoring key financial warnings.
The worst performing firm was KPMG which was involved in five investigations resulting in FRC sanctions for the firm and involved partners, followed by PwC with four audits which were subject to various probes and fines by the regulator.
The highest fine over the period was the £21.4m sanction given to KPMG for a string of audit failures and misconduct related to the audit of collapsed outsourcer Carillion.
The original Carillion sanction was £30.6m, double the amount of any fine ever issued by the regulator, but it was reduced due to KPMG’s cooperation with FRC investigators.
PwC received four FRC sanctions over the period, including a £7.5m fine over audit failures related to Babcock International Group and £5.5m for Galliford Try audit issues.
FRC audit sanctions 2021-23
Year end audit
Eddie Stobart Logistics
Eddie Stobart Logistics
Babcock International Group
Laura Ashley Holdings
Kyle Gibbons, head of global accounts for confirmation at Thomson Reuters said: ‘The sheer cost of fines issued in 2023 by the FRC demonstrates that the regulator is using serious sanctions to help improve the quality of audits across the industry in Britain.
‘The FRC took the decision that with ARGA being delayed it should not wait for the transition before it started a new tougher fines regime, and the FRC reporting an improvement in audit standards.’
Accountancy firms need to upscale their audit tools and invest in technology to improve their audit work.
‘Rather than risk fines, it now makes far more economic sense for audit firms to increase their rigour and technology stack,’ added Gibbons.
‘Looking ahead to the next year, something UK firms can proactively do to reduce the risk of manual errors is to make better use of technology. When adopted in a thoughtful way, technology can give these firms greater capacity to take on larger audits and the confidence to compete for them.
‘The smartest auditors are dealing with increased regulatory pressure by stepping up investment in a new generation of technology designed to improve audit quality and root out poor practice. Ensuring high quality work and complying with FRC standards is crucial to preserve the reputation and profitability of audit firms.’
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