The audit watchdog levied almost three times more sanctions against UK accountants last year than in the previous year, as it attempted to combat accusations that it has been too lenient.
The Financial Reporting Council, which is to be replaced by a more powerful statutory regulator called the Audit, Reporting and Governance Authority, issued £43m of fines in 2018, up from £15.5m the year before. The figures do not include discounts awarded for settlements; when factored in they reduced the fines to £32m last year and £13m in 2017.
The number of fines imposed by the FRC rose from 11 to 27, among them a series of record penalties against Big Four auditors, including a £10m fine — reduced to £6.5m after a settlement — against PwC for misconduct in its audit of department store chain BHS. The watchdog opened 15 investigations last year, one more than in the previous year, and closed 13 of its cases, four more than in 2017.
Elizabeth Barrett, the FRC’s director of enforcement, said the regulator had increased the size of its fines to “improve behaviour” at the UK’s largest accounting firms. “The purpose of the sanctions is to deter bad behaviour and send a message to the market,” she said. “A large fine that has both a monetary and reputational impact is important.”
The FRC has faced pressure to strengthen its oversight of the audit market after accusations that it was too soft on the entities it oversees, and too slow to act when a firm has been accused of misconduct.
The watchdog disclosed the numbers in its first annual enforcement review in an attempt to demystify its investigations into the UK’s largest audit firms. The move follows more scrutiny on the sector after a string of corporate collapses and accounting scandals.
A government-backed review into the effectiveness of the FRC by John Kingman, the chairman of Legal & General, late last year accused the watchdog of having “limited transparency”. Sir John called the watchdog a “hangover from a different era” and recommended that it be scrapped and replaced by ARGA.
Some of the report’s revelations could prompt calls for even greater openness. It revealed that it had 41 open cases, 25 into firms and individuals in relation to audits of companies. However, just nine of the audit-related cases have been publicly announced.
The FRC has also failed to speed up its investigations. The report said the average number of months it took to conclude an investigation that resulted in the case being referred to an enforcement tribunal increased from 77 months to 82.
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