FRC audit fines up 44% to £24.3m

There was a 44% hike in the value of fines issued by the Financial Reporting Council (FRC) to audit firms last year, following a global trend which sees its replacement regulator set to impose even tougher sanctions, according to analysis by Thomson Reuters

Thomson Reuters calculates last year’s FRC fines hit £24.3m, up from £16.9m the year before, and says the increase is seen as setting the tone for the regulator’s replacement, the Audit Reporting & Governing Authority (ARGA), which is expected to launch by March 31 2020.

Following the collapse of several of high-profile listed companies, such as Carillion and Patisserie Valerie, the government backed the granting of tougher powers to ARGA in order to help deliver an improvement in the performance of audit firms.

In advance of ARGA’s establishment, the FRC plans to invest further in its enforcement teams, and has recently kicked off a new recruitment drive as it expands its roles and responsibilities The regulator has launched a series of videos showcasing some 80 new positions being created in the 2019/20 financial year alone. The FRC is currently involved in 10 investigations including inquiries related to the audits of Interserve, Conviviality and Thomas Cook.

Additional Thomson Reuters research showed that regulators in the US have also been taking a tougher approach to the regulation of auditors with far of fines over the last year.

The value of fines for audit failures imposed by the Securities & Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB) hit $64.7m (£51m) last year, up from $12.5m (£9.8m) the year before, although this figures does include a few particularly high value fines.

The analysis suggest growth in the value of fines comes as regulators adopt an increasingly collaborative approach, which is likely to be felt by audit firms with large international footprints. It points out over 50 accountancy watchdogs globally are now part of the International Forum of Independent Audit Regulators (IFIAR) which provides a platform for sharing information and coordinating cross-border investigations.

Brian Peccarelli, chief operating officer, customer markets, Thomson Reuters, said: ‘The increase in fines has set a clear direction of travel for the FRC as it transitions into a new entity.

‘There is pressure being heaped on audit firms and the wider industry to stamp out any incidents of malpractice. Firms look to be taking this onboard and implementing new processes to ensure nothing slips through the net.

‘Rising fines and enforcement action is not just a UK phenomenon. The approach of regulators is becoming more and more coordinated – boards should take note.’

By Pat Sweet

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