FRC should raise threshold for enforcement action, ICAEW boss says
It comes as the FRC has imposed record fines on audit firms in recent years in a bid to crack down on poor audit quality
The FRC should raise its threshold for bringing enforcement action against auditors, Michael Izza, CEO of the ICAEW has told The Financial Times.
He argued the watchdog should “soften its approach” in a bid to make the profession more attractive for employment.
It comes as the FRC has imposed record fines on audit firms in recent years in a bid to crack down on poor audit quality. This followed high-profile corporate scandals, such as the collapse of Carillion in 2018.
In the financial year to March 2023, the FRC levied fines of £40.5m for misconduct and breaches of standards, slightly below the record £46.5m in the previous 12-month period.
Speaking to the FT, Izza said: “Prior to 2017, if the FRC brought a case against an auditor, the threshold test that they were looking to meet was ‘misconduct’. That was lowered to non-compliance with the relevant auditing standards.
“That is now the lowest threshold of any professional in the UK. And it is our view that threshold is now too low. It probably shouldn’t go back to ‘misconduct’, but there’s somewhere in between that would be a more sensible area.”
He added: “It all comes back to the FRC’s competition role. If you want good people to come in, if you want good firms, you’ve got to give them a profession where they feel their view is valued.”
Izza said that although the regulator was still waiting for the government to pass legislation to give it enhanced powers, “some of the things that potentially are a barrier to competition are actually within the FRC’s control”.
He highlighted the increased level of fines in recent years and the public “rebuking” of individual audit partners, a practice that he said could “effectively end someone’s career”.
He added: “If there is a deficiency, and let’s say at one extreme it’s incompetence or outright deception, people should have the book thrown at them. But if the issue is one of judgement . . . you should be more forgiving of that.”
