Home Archive Hefty financial penalties proposed for “seriously poor” audit work

Hefty financial penalties proposed for “seriously poor” audit work


The Big Four accounting firms could face fines of up to £10m or more for faulty audits, if the Financial Reporting Council (FRC) accepts the proposals in new report.

In the report, former UK judge Sir Christopher Clarke concludes that it may be appropriate to impose “fines greater than those that have heretofore been imposed” when auditors are found to have submitted “seriously poor audit work”.

“If one of the Big 4 firms was guilty of seriously bad incompetence, in respect of the audit of a major public company… a financial penalty of ten million pounds or more before any discount could be appropriate,” the report said.

The Big Four check the books of nearly all big, listed companies and the FRC has faced criticism for not going harder on them, given they are richer than many of their clients.

PwC, one of the big four, was hit with a record £5.1 million ($6.8 million) misconduct fine in August for the way it audited collapsed accounting firm RMS Tenon.

In the year to July 2017 the FRC imposed fines totalling £14.2m on auditors and audit firms.

Much heftier fines could be justified in cases of seriously poor audit work by a “Big Four” accounting firm, a reference to PwC, KPMG, EY and Deloitte, the report said.

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.”

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.”

The FRC said it will now decide which recommendations to adopt to ensure that sanctions imposed continue to be fair, effective and in the public interest.