By Maria Ward-Brennan
An accountancy chief has called on the Financial Reporting Council (FRC) to raise the threshold for enforcement action against auditors.
Speaking to the Financial Times, Michael Izza, chief executive of the Institute of Chartered Accountants England and Wales 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.
Back in 2020, the accounting watchdog announced its plans to create a “more forceful regulator” after it was heavily criticised for the slow pace of its investigations.
The planned reforms were considered necessary to restore public trust following the collapse of several high-profile businesses including Carillion, BHS and Thomas Cook.
In the year running up to 30 September 2022, the FRC fined auditors a record £33.3m, which was a 77 per cent increase on the previous year and designed to “send a clear message” to the accountancy sector.
However, in August, it was reported that the Government had shelved the planned overhaul of the UK’s audit and governance regime due to concerns it wouldn’t have enough time to pass the changes in Parliament.
The FRC noted in November that it will look to focus on promoting “growth and the UK’s competitiveness” after the government shelved its host of reforms.
Speaking to the FT, Izza said: “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.”
The FRC was contacted for comment.
