Substantial increase in fines as FRC takes tough action to tackle poor quality audit
News types: Generic Announcement, Investigations, Tribunals
Published: 31 July 2019
- Record £43m of fines for misconduct and standards breaches
- Significant increase in number of concluded cases
- Enforcement Review also highlights role of non-financial sanctions such as exclusions and ongoing monitoring to address misconduct and improve behaviour
The Financial Reporting Council (FRC) has today issued its first Annual Enforcement Review which reveals a significant increase in sanctions and settlements.
The Review provides a baseline for measuring future Enforcement performance as the FRC transitions into the Audit, Reporting and Governance Authority (ARGA) and highlights issues identified in enforcement cases and actions taken to address them.
Key findings from the review include:
- A near trebling in annual fines, from £15.5m in 2017/18 to £42.9m in 2018/19.
- Far greater use and range of non-financial sanctions, rising from 11 in 2017/18 to 38 in 2018/2019.
- Significant reduction in “legacy” cases.
- Increased use of horizon scanning techniques to identify issues requiring investigation.
- 25% in year growth in the Enforcement Division.
The Review sets out the robust and proportionate Enforcement action taken in the past year and the sanctions imposed. It explains the context and use of exclusions and other non-financial sanctions with their emphasis on driving the quality and reliability of future financial reporting. Improving behaviour is key and the Review sheds further light on issues identified in Enforcement cases, and the actions taken to address them, to inform those the FRC regulates of behaviour that is unacceptable.
Delivering consistently timely outcomes is a priority for the FRC. The Review shows that real progress has been made in concluding legacy cases. Improving the speed of investigations also remains a key focus. Resourcing has increased significantly, with further growth planned, and processes have been streamlined. These changes are beginning to show results.
The importance of co-operation including the need for early acknowledgement and addressing of errors is also emphasised.
Elizabeth Barrett, the FRC’s Executive Counsel said :
“The clarity and accuracy of financial reporting is of critical importance to us all. The significant increase in the number, range and severity of sanctions sends a clear message that where behaviour falls short of what is required, we will hold those responsible to account.
“Improved behaviour by those we regulate requires recognition that where failures occur their root causes must be identified, effectively addressed and reported to us. Where such co-operation occurs due credit will be given; where it does not, consequences will be severe.”
A copy of the Annual Enforcement Review can be viewed here.