Regulators have proposed a new process that would involve lighter-touch enforcement for some audit firms facing investigation for audits falling short of standards.

The Financial Reporting Council announced a consultation on new graduated procedures that expand the number of methods for resolving audit failings.

Currently, watchdogs have a binary choice between a “constructive engagement” approach or “full investigation”.

The proposal would give them new “routes” to settle cases that would sit between the two and include an option for audit firms to conduct their own reviews under supervision and “admit identified breaches” in some circumstances.

Richard Moriarty, chief executive of the FRC, said the proposals come after an “end-to-end” review of procedures when pursuing cases against audit firms.

‘Proportionate and timely’

“We’re proposing a graduated set of interventions that would expand the range of tools we have to take more proportionate and timely action, while maintaining our ability to conduct thorough investigations where needed,” Moriarty said.

Action against auditors has been highly controversial in the UK following a series of corporate collapses including that of the construction giant Carillion in 2018, which prompted a series of government reviews examining the sector.

When the watchdog reported in July this year, it had 32 current investigations underway, with eight opened looking at auditors during the year, compared with six the previous year.

Nine out of ten cases were resolved within a two-year target, compared with 53% the previous year, indicating an already accelerated pace of work.

The watchdog levied sanctions worth £14.5m, compared with £48.2m the previous year. The year 2024 included some exceptional cases, including the end of investigations into audit work at Carillion, which concluded with a total of £30.6m (before discounts) in sanctions against KPMG and two of its partners.

Proposed new procedures would include a “published constructive engagement” in which the results of a “constructive engagement” process would be made public, though it would not include the name of the audit firm.

There would also be an “accelerated procedure”, allowing auditors and audit firms to admit their failing and regulators to issue sanctions without opening a formal investigation.

The proposals come after the chancellor Rachel Reeves said the government would seek to “take the boot of regulation off the throat of businesses”.

Successive governments have said they will introduce audit reforms to tackle deficiencies in regulation of the sector, including the creation of brand new regulator with strengthened powers.

As yet, there has been no legislation introduced in Parliament to follow through on the proposals.