Audit Enforcement Procedure

Published: 25 September 2023

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Introduction

In 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.

Enforcement action is taken under the FRC’s Audit Enforcement Procedure (AEP). On this page we set out:

Scope of the AEP

The FRC will investigate matters relating to the audits of:

  • Public Interest Entities (PIEs), being listed entities, credit institutions and insurance undertakings;
  • AIM-listed companies with a market capitalisation in excess of €200m;
  • Lloyds Syndicates.

Other audit-related investigations have been delegated to the Recognised Supervisory Bodies (RSBs), such as the Institute of Chartered Accountants for England and Wales, but the FRC can reclaim an investigation from an RSB if it chooses to do so.

Outline of the AEP process

There are up to four stages of an AEP investigation:

  1. Initial enquiries: these are conducted by the Case Examiner and may result in a referral to the FRC’s Board or Conduct Committee to decide whether the matter should be referred to the FRC’s Executive Counsel to investigate. The Conduct Committee will also decide whether the fact of an investigation is to be published.
  2. Investigation: the Executive Counsel’s investigation will be conducted by an in-house team of lawyers and forensic accountants, culminating in an Investigation Report. At the conclusion of the investigation, the Executive Counsel will issue a Decision Notice which will set out any Adverse Findings and a proposed sanction. If the findings and sanction are accepted by the investigation subject, the process will end there. Agreed Decision Notices are subject to approval by an Independent Reviewer. Publication of sanctions issued is mandatory.
  3. Tribunal: a matter shall be referred to the Tribunal if it is neither concluded at the Investigation stage nor otherwise settled. The Tribunal will hear evidence and determine whether or not to make an Adverse Finding. Where an Adverse Finding has been made, the Tribunal may impose sanctions. Publication of sanctions issued is mandatory.
  4. Settlement: at any time after a notice of investigation has been issued but before a Tribunal has issued its decision, the parties may seek to agree settlement. The Executive Counsel will issue a Settlement Decision Notice if the terms of settlement are agreed. Agreed Settlement Decision Notices are subject to approval by an Independent Reviewer. Proceedings will continue if no settlement is reached.

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