Enforcement Procedures
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On 17 June 2016, the FRC became the 'competent authority' for audit in the UK under new legislation which came into force following the EU Audit Regulation and Directive, which have been retained in domestic UK Law.
The FRC operates three enforcement procedures:
- The Audit Enforcement Procedure (AEP)
- The Accountancy Scheme
- The Actuarial Scheme
Enforcement process
A high-level overview of our enforcement process is set out below.
Case Examiner
Information sources include: horizon scanning, complaints, whistleblowing disclosures, other FRC teams, regulators, audit firms and professional bodies.
Decision to investigate (or use the Accelerated Procedure, under the AEP)
Taken by the FRC’s Board or Conduct Committee following a referral by the Designated Officer (AEP) or the Case Examiner (Schemes). Passed to Executive Counsel.
Investigation
Undertaken by Enforcement Division’s forensic accountants and lawyers. We have powers to require production of information and documents from audit firms, auditors and certain audited entities (AEP) and accountants and actuaries (Schemes). There is a general duty to cooperate under both regimes. Independent expert opinion on potential Misconduct/ breaches is sought in most cases.
Settlement
Settlement is encouraged under both the Schemes and AEP with significant discounts to fines typically available to respondents where early admissions are made. Under the AEP, an Early Admissions Process allows Executive Counsel to agree to Respondent carrying out their own self-review of the matter, as an alternative to conducting a full investigation, and use the resulting admissions as the basis for settlement. Under all regimes, settlements are approved by the Independent Reviewer.
Tests
If at any time the Executive Counsel decides that the tests have not been met, the case is closed.
Accelerated Procedure (AEP)
This procedure provides an alternative route to settlement by using information already held by the FRC as the basis for proposing breaches and sanctions for agreement by the Respondent. If the subject is unwilling to settle the matter, or if it otherwise appears that it would be more suitable for the matter to be dealt with by some other means, Executive Counsel can refer it back to the Conduct Committee.
Proposed allegations
Grounds for potential Misconduct/breaches set out in document that is served on audit firms, accountants and/or actuaries. Opportunity for respondents to make representations.
Enforcement action
Decision by Executive Counsel to pursue enforcement action where the relevant tests are met. Final allegations served on Respondents.
Determination
Breaches determined by Executive Counsel can be accepted by the Respondent. Independent Reviewer approves (AEP). If breaches (AEP) or allegations of Misconduct (Schemes) are not accepted the case will be referred to the independent Tribunal. Tribunal will conduct full hearing and determine if breaches or Misconduct. Public will have access.
Sanctions
Sanctions for Misconduct/breaches imposed. Outcome published.