The Financial Reporting Council (FRC) will implement the recommendations of the independent review of sanctions undertaken last year, which include introducing a fine of £10m or more for seriously poor work by a Big Four firm and greater use of non-financial penalties, as well as the possibility of ten-year bans for individuals
The independent review of sanctions was undertaken by a panel chaired by former Court of Appeal Judge Sir Christopher Clarke. As well as a hike in fines for Big Four firm failures, it recommended exclusion from the accounting profession for a minimum of 10 years for dishonesty, and said sanctions should reflect the level of cooperation by respondents.
The regulator has published updated guidance for the tribunal that hears FRC enforcement cases involving auditors, accountants and actuaries, which will take effect on 1 June 2018.
Paragraph 9 of the guidance, which was highlighted by the review as in need of revision, now stated that sanctions have a number of objectives including ‘to declare and uphold proper standards of conduct amongst members and member firms and to maintain and enhance the quality and reliability of accountancy work’.
Other objectives are to maintain and promote public and market confidence in the accountancy profession and the quality of corporate reporting and in the regulation of the accountancy profession; to protect the public from members and member firms whose conduct has fallen significantly short of the standards reasonably to be expected, and to deter members of the accountancy profession from committing misconduct.
The guidance states: ‘The primary purpose of imposing sanctions for acts of misconduct is not to punish, but to protect the public and the wider public interest.’
The FRC states that tribunals should consider whether, and, if so, to what extent, the sanctions proposed would be likely to lead to improvements in respect of the matters which give rise to the proceedings and in the quality of work of the member or member firm concerned.
The guidance states: ‘Tribunals should also consider whether the sanction or combination of sanctions, financial and/or non-financial, achieve the objectives of the scheme. There may be circumstances where the objectives can be achieved without a fine.’
In deciding which sanction or combination of sanctions to impose, a tribunal should have regard to the principle of proportionality. In assessing proportionality, a tribunal should consider whether a particular sanction is commensurate with the circumstances of the case, including the seriousness of the misconduct found and the circumstances of the member or member firm concerned.
In judging the seriousness of the misconduct, the tribunal is required to consider a number of factors, including the nature of the misconduct, the level of responsibility of the member or member firm, and the actual or potential loss or harm caused. This will include consideration of the extent to which intent, recklessness, knowledge of the risks or likely consequences, negligence or incompetence are involved.
Accountancy Scheme Sanctions Guidance is here.
Actuarial Scheme Sanctions Guidance is here.
Sanctions Policy (Audit Enforcement Procedure) is here.
Report by Pat Sweet
