Enforcement (overview)

Published: 25 September 2023

6 minute read

Introduction

The Enforcement Division conducts investigations and will bring enforcement action, if appropriate, against auditors, accountants, accountancy firms, and actuaries where there appears to be misconduct or a breach of the relevant professional standards. The Enforcement Division is led by Elizabeth Barrett, who is the Executive Counsel and Executive Director, Enforcement. The division comprises a team of lawyers and forensic accountants, supported by a small operational and administrative team to ensure that investigations and enforcement actions are conducted robustly, fairly and efficiently.

Who can the FRC investigate and act against?

The FRC’s overarching mission is to serve the public interest by setting high standards of corporate governance, reporting and audit and by holding to account those responsible for delivering them.

As the Competent Authority for Statutory Audit and the independent disciplinary body for accountants and actuaries in public interest cases, the FRC is committed to delivering robust, fair and transparent regulatory outcomes on a timely basis.

Those within the FRC’s jurisdiction include Statutory Auditors and audit firms, accountants, firms of accountants, and actuaries.

Auditors

The FRC has responsibility for enforcement action in relation to Statutory Audit firms and individual Statutory Auditors.

Accountants

The FRC can also take enforcement action in respect of suspected Misconduct by individual accountants and firms of accountants who are members of the professional accountancy bodies in relation to non-audit work in public interest cases. These individuals are often working within businesses preparing financial statements and other financial information.
Members who undertake audit work but are not a Statutory Auditor also fall within the jurisdiction of the Accountancy Scheme.

Actuaries

The FRC can take enforcement action in respect of suspected Misconduct by individual actuaries who are members of the Institute and Faculty of Actuaries (IFoA) in public interest cases. The FRC has no jurisdiction over firms employing actuaries.

The FRC currently has no powers to investigate, take enforcement action or impose sanctions on individuals, including directors, who are not members of the professional accountancy bodies or the IFoA (members). The scope of our enforcement powers is the subject of consultation for legislative change.

The Enforcement regimes

The FRC operates three Enforcement regimes.

  • The Audit Enforcement Procedure in respect of Statutory Auditors and Statutory Audit firms in relation to audits of Public Interest Entities (PIEs), large AIM-listed companies with a market capitalisation of more than €200m and Lloyd’s Syndicates;
  • The Accountancy Scheme in respect of accountants and firms of accountants who are members of the Participants in that scheme, in relation to non-audit work in public interest cases. These individuals are often working within businesses preparing financial statements and other financial information;
  • The Actuarial Scheme in respect of individual actuaries who are members of the IFoA.

The three procedures described cover the vast majority of the FRC’s Enforcement investigations. The FRC also operates the Auditor Regulatory Sanctions Procedure to determine sanctions against Audit Firms where they have failed to comply with local audit rules, and the Crown Dependencies Recognised Auditor Regulatory Sanctions Procedure 2021 in respect of Recognised Auditors registered in Guernsey, the Isle of Man and Jersey.

Members who undertake audit work, but are not a Statutory Auditor, also fall within the jurisdiction of the Accountancy Scheme.

The Audit Enforcement Procedure (AEP)

The AEP confers powers on the FRC Board to open investigations. In the majority of cases, the decision to open investigations is delegated to the Conduct Committee. An investigation is opened by the Board or Conduct Committee where there is information that ‘raises a question as to whether a Statutory Auditor or Statutory Audit Firm has breached a Relevant Requirement’ and it considers that there is a good reason to investigate. Enforcement action can be taken if the Executive Counsel concludes that the investigation establishes that there has been a breach of a Relevant Requirement under auditing or ethical standards. The AEP was reissued following public consultation in January 2022 and again in June 2023.

The Accountancy Scheme and Actuarial Scheme (the Schemes)

The Schemes are contractual arrangements between the FRC and the accountancy/actuarial professional bodies, and provide for the FRC to investigate and take enforcement action against members in cases that raise important issues affecting the public interest in the UK.

The Schemes confer power on the FRC Board to open investigations. In the majority of cases the decision to open investigations is delegated to the Conduct Committee. Investigations are opened by the Conduct Committee, principally where it determines that a matter raises or appears to raise important issues affecting the public interest in the UK and that there are ‘reasonable grounds to suspect that there may have been Misconduct’. Misconduct is defined as conduct that falls significantly short of the standards reasonably to be expected of such an accountant, accountancy firm or actuary, or which has brought, or is likely to bring, discredit to the accountant/actuary or to their profession. It is also possible for Executive Counsel to commence an investigation into a firm or individual for an apparent failure to comply with the obligations under paragraphs 14(1) or 14(2) of the Schemes.

Enforcement action can be taken where Executive Counsel determines that there is a realistic prospect that a Tribunal will find that individual professional accountants/actuaries or accountancy firms have engaged in Misconduct.

Information gathering powers

Both the AEP and the Schemes contain provisions allowing the FRC to request information and documentation from a number of individuals and entities. In the case of the AEP, failure to comply with such requests is a criminal offence.

The following table sets out which Enforcement regime applies in respect of the individuals and entities within the FRC’s jurisdiction pre- and post- implementation of the relevant EU legislation in June 2016.

Enforcement regime application
Subjects of inquiry and investigation Auditors (firms and individuals) Accountants Actuaries
Powers pre-2016 Accountancy Scheme Accountancy Scheme Actuarial Scheme
Powers post- 2016 Audit Enforcement Procedure Accountancy Scheme Actuarial Scheme

The FRC has a number of live investigations under each of its Enforcement regimes. For a list of current FRC investigations which have been publicly announced see the Enforcement Cases listing.

Sanctions

The AEP and the Schemes each prescribe a range of sanctions that can be imposed following a finding of Misconduct or a breach of Relevant Requirements. The sanctions may be of a financial nature (e.g. an unlimited fine or waiver of client fees) or non-financial (e.g. a Reprimand or exclusion as a member of a professional body). These include:

  • unlimited fines;
  • reprimands or severe reprimands;
  • orders designed to prevent recurrence, such as placing restrictions on the nature of work undertaken or clients represented, and education and training programmes;
  • waiver or repayment of client fees;
  • prohibition from conducting Statutory Audits, withdrawal of registration or practising certificate; and
  • exclusions from membership of a professional body.

Additional sanctions under the AEP include:

  • notice to cease or abstain from conduct giving rise to the breach of a Relevant Requirement (and publication of this);
  • a declaration that the Statutory Audit Report does not satisfy the Relevant Requirements; and
  • temporary prohibition from being a member of the management body of an audit firm or a director of a PIE.

Details of the sanctions that may be imposed are set out in the relevant published procedural documentation and related guidance:

The proceeds of financial sanctions imposed in AEP matters are remitted to the government, while in cases under the Accountancy Scheme the proceeds of such sanctions are remitted to the professional body of the firm or individual which has been sanctioned, in accordance with the contractual arrangements by which that Scheme operates. Financial sanctions imposed under the Actuarial Scheme are held in a Case Costs Fund to be used for the funding of investigations under the Actuarial Scheme.

Case Assessment

From 1 April 2023, the Case Examiner and Case Examination and Enquiries became a separate team within AFS and has been renamed Case Assessment (CA).

Constructive Engagement decisions are made by the Case Examiner. Detailed enquiries, and identification of remedial actions, where appropriate, are conducted by the Supervisor team.

Governance and Advisory

The Board

The Board is responsible for and oversees the maintenance and operation of Enforcement procedures with the assistance of the Conduct Committee.

The Board delegates Enforcement decisions, for example to open and close investigations and take enforcement action, as set out in the FRC’s published Enforcement procedures.

Conduct Committee

The Conduct Committee is a committee of the FRC Board, to which its Chair reports on Enforcement matters. It comprises Board members and is assisted by Senior Advisors such as former auditors, with a range of skills, experience and relevant technical expertise. The Conduct Committee decides whether to open investigations under the AEP and Schemes, and performs an oversight role in relation to the FRC’s Enforcement work, including the work of the Case Examiner. If it considers that an AEP case is suitable for Constructive Engagement, it can refer the matter back to the Case Examiner. If it considers that it does not have sufficient information to open an investigation under the Schemes, it can direct Executive Counsel to conduct preliminary enquiries. The Conduct Committee is also responsible for making decisions about publication of certain case-related matters and for issuing guidance.

Advisory Panel

Enforcement is able to access expertise from a large pool of subject matter experts on the FRC Advisory Panel. A list of the current members of the Advisory Panel and their biographies can be found on the FRC website.

Glossary

Read the definition of terms we use on this site and within our publications.

Topics

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