Home Accounting and Auditing Accounting watchdog criticised over stance on sexual harassment

Accounting watchdog criticised over stance on sexual harassment

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Britain’s accounting watchdog has been criticised for failing to focus on sexual harassment at the firms it supervises after it emerged that dozens of partners have been forced out of the Big Four for “inappropriate behaviour” over the past four years, reports Financial Times.

The Financial Reporting Council told the Financial Times that there was no requirement on accounting firms to inform the regulator of internal investigations into staff conduct unless the probe involved “regulated activities” such as audit failures.

This stands in contrast with the stance adopted by the banking regulator, the Financial Conduct Authority, which expects to be informed of potentially serious misconduct including bullying or sexual misconduct at the companies it supervises.

When asked whether the FRC planned to increase its focus on sexual harassment in the audit market, the regulator said it was “looking at audit firms’ values and behaviours . . . [H]ow complaints over inappropriate or unethical behaviour of any sort are identified and handled is likely to form an element of this work”.

Politicians, academics and former Big Four employees said the FRC needed to do more to stamp out sexual misconduct and bullying in the industry. This comes after the Big Four admitted this week that 37 of their UK partners had been forced out over such issues since 2014.

Jess Phillips, the Labour MP who sits on the House of Commons Women and Equalities Committee, said: “All regulators have a duty to make sure that those they seek to regulate are fit and proper people. I am astounded that [the FRC does not] think that the sexual harassment of staff in their sector is a factor in what makes companies and their staff fit and proper.

She added: “The FRC has a responsibility to make sure [accounting firms] can be trusted to act ethically. Gone are the days when regulators can just shrug their shoulders and say ‘it’s not our problem’.”

Atul Shah, visiting professor at City University in London, said: “The FRC has long been captured by the Big Four and FTSE corporates, never seeing the critical importance of culture and ethics to good corporate management, governance and accountability. It has proved itself to be a regulator with no bite on any major public issue. Time for urgent and radical reform.”

The Women and Equalities Committee published a paper on sexual harassment in the workplace in July, in which it urged regulators to “take a more active role” by setting out the actions they will take to help tackle sexual misconduct and by making it clear to those they regulate that sexual harassment is a breach of professional standards and a reportable offence with sanctions.

Megan Butler, the FCA’s head of supervision, wrote to the committee in September to set out the banking watchdog’s approach to tackling sexual harassment. She said: “There have been instances where either we or a firm we supervise have found an individual not to be fit and proper on the basis of their ‘non-financial’ conduct, with the consequence that they were unable to be taken up or else continue in their role.

“Where appropriate, we will continue to pursue such measures in future.”Ms Butler previously told the committee that out of about 1,500 whistleblowing complaints made to the FCA over the past couple of years, about nine related to sexual harassment.The FRC said it received 23 referrals from whistleblowers in 2017-18, but declined to comment on how many related to sexual harassment.

A former director at one of the Big Four said: “From an ethical and regulatory point of view, harassment can have serious repercussions on professional standards and should be taken more seriously. Regulators like the FRC . . . [should] examine the work of teams with sexual harassment or bullying complaints.”

The FRC said in a statement: “We are aware of the coverage of . . . how Deloitte have dealt with instances of inappropriate behaviour. We are supportive of the approach that Deloitte have taken, and would expect other audit firms to operate in similar fashion.“The focus of the FRC’s oversight of the major audit firms is around the quality of the audits that they deliver, and the arrangements that they have in place to support this. We have therefore not monitored sexual harassment per se as a specific issue.”

The FRC added that it expected firms to have “strong procedures in place to establish why prospective employees have moved on from predecessor firms”.