The value of fines issued by the Financial Reporting Council (FRC) to auditors rose 180% to just under £25m in the last year, up from £8.9m in the previous twelve months. This was driven by a record high £20.6m fine, according to a study by audit confirmation solution, Confirmation, a part of Thomson Reuters.
Confirmation said the increase shows that the FRC is continuing to use fines as part of its “campaign” to improve the quality of the audit work that accountancy firms provide.
Last year, the FRC announced that the ‘Big Four’ accountancy firms must “ring-fence” their audit functions from other service lines to ensure audits are “carried out independently”.
It comes as The Department for Business, Energy and Industrial Strategy (BEIS) recently announced proposals to broaden the FRC’s powers, enabling it to “scrutinise” a company’s entire annual report and accounts, rather than just the strategic report, directors’ report and accounts themselves, as is currently permitted.
BEIS has also recommended that the regulator be granted powers to order amendments to company reports, without having to seek a court order.
Confirmation said this shows the FRC is “determined” to take decisive action against poor quality audit work ahead of its transition to the Audit Reporting and Governance Authority by 2023.
ARGA is set to have broader oversight powers than its predecessor to issue heavier penalties. All company directors of Public Interest Entities will fall under its scope.
Kyle Gibbons, managing director of Confirmation, said: “The rise in the value of fines issued shows the FRC is willing to use financial sanctions to drive investment and improvements in audit.”
“Fines are now of the scale where they can make a substantial impact on the profits of a firm, even those of the Big Four. A series of multi-million-pound fines have made the audit profession sit up and take notice and they are now investing in reform and technology as never before.”