Big Four accounting firms could face fines of up to £10m or more for faulty audits, a report proposes for UK regulators.
The report, compiled for the Financial Reporting Council (FRC), concludes that it may be appropriate to impose the fines when auditors are found to have submitted “seriously poor audit work”.
The report also recommended greater use of non-financial penalties “to be imposed to maintain and enhance the quality and reliability of future audit and accountancy work…” The proposals include banning an individual auditor for up to ten years.
The FRC said: “The FRC welcomes the report and is grateful to the review panel for its work. The FRC will now carefully consider the report in order to decide which recommendations to adopt and incorporate into revised sanctions guidance to ensure that sanctions imposed continue to be fair, effective and in the public interest.”
The report was undertaken by Court of Appeal Judge Sir Christopher Clarke.
In August this year the FRC imposed a record fine on PwC of £6m, reduced to £5.1m on settlement discount, for its audit of fellow professional services firm RSM Tenon. And, in August 2016, the FRC levied PwC with fines of £3.5m, reduced to £2.3m after mitigation—and issued a “severe reprimand”—for its audit in 2007 of subprime lender Cattles and its subsidiary Welcome Finance.
In the year to July 2017 the FRC imposed fines totalling £14.2m on auditors and audit firms.
Professional scepticism
Earlier this year the regulator said that a review revealed that audit companies were investing in improve audit quality, but also expressed concerns about professional scepticism among auditors.
Melanie McLaren, the FRC’s executive director for audit, said: “In our monitoring of audit quality we have yet to see overwhelming evidence of improvement in all sections of the market or the consistency of performance we want between different firms. Firms are though investing in improvement measures, and those Audit Committees surveyed report that they are seeing evidence of good-quality audit.
“Firms are focused on areas including their leadership, governance and culture, better use of technology and quality management systems.”
She continued: “This year we will focus on how we can enhance the speed and effectiveness of our enforcement role underpinning justifiable confidence in audit.”
