Case Assessment

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Case Assessment (CA) identifies and makes initial enquiries in respect of matters, which may fall within the remit of one or more of the FRC’s disciplinary schemes (the Audit Enforcement Procedure (AEP), the Accountancy Scheme and the Actuarial Scheme).

CA is overseen by the Designated Officer (DO - the Executive Director Supervision) who is responsible for all key decisions in respect of matters subject to enquiry (both AEP and the Schemes), and the recommended course of action in response to these enquiries.

Further guidance in respect of the work of CA in respect of the AEP can be found in the Case Assessment and Allocation Policy.

Sources of Enquiries

Enquiries are generated from horizon-scanning activities, which include searches of listed company Regulatory News Service (RNS) updates and reviews of reports in the financial press. Other sources of enquiries are complaints, whistleblowing disclosures and referrals from other FRC teams, regulators and professional bodies.

Consideration is given to the nature and significance of the matter before deciding to make further enquiries to ensure that our actions are proportionate and risk based.

Horizon-scanning

  • Matters typically considered as part of our horizon-scanning activities include:
  • Material misstatements in a company’s financial statements that may not have been detected through the Statutory Audit process (including errors in the audited financial statements themselves and in other parts of the annual report that an auditor has a duty to review)
  • Indications of fraud that may not have been detected by the Statutory Audit process, and
  • Indications of Misconduct by professional accountants or actuaries where it may be in the public interest for the FRC to make enquiries, primarily in relation to the preparation and approval of financial statements which may contain material errors.

In relation to errors in a set of financial statements, we focus on those matters that are more significant that could reasonably be expected to influence the decisions of users of the financial statements.

Complaints and whistleblowing disclosures

Complaints and whistleblowing disclosures are managed centrally by the FRC and are referred for further assessment and enquiry if they relate to audit, accounting or actuarial matters within the FRC’s Enforcement remit.

Referrals

Other FRC teams may refer matters for further enquiry if they become aware of matters indicative of auditing, accounting or actuarial irregularities. A primary source of such referrals are audit inspections conducted by Audit Quality Review (AQR).

In addition, the FRC’s Corporate Reporting Review (CRR) team may identify a material error in a company’s financial statements in terms of an incorrect accounting treatment or a disclosure failure, which may also raise a question as to whether there has been a failure in the audit process.

CA liaises closely with other relevant regulators and prosecuting authorities to identify cases of public interest and determine which body may be best placed to act. CA both receives and makes referrals, and information is received from and shared with other agencies as permitted through formal legal gateways.

Outcomes of Enquiries

AEP Enquiries

There are five possible outcomes as follows:

  1. No further action.
  2. Constructive Engagement
  3. Published Constructive Engagement
  4. Accelerated Procedure
  5. Investigation

Decisions in respect of outcomes 2 to 5 are made by the FRC’s Conduct Committee.

No further action decisions are typically made by the DO where it is determined that no question has been raised as to a breach of a relevant requirement, or where the DO does not consider the matter warrants referral to the Conduct Committee.

Where the Conduct Committee agrees that a matter should be subject to Constructive Engagement or Published Constructive Engagement, then the matter will be passed to the relevant Audit Firm Supervisor to progress.

Scheme Enquiries

There are two possible outcomes:

  1. No further action
  2. Referral for investigation.

Decisions to investigate are taken by the Conduct Committee.

No further action decisions are made by the DO where it is determined that there is no evidence to indicate that there has been misconduct or where there is limited public interest in the matter being referred to the Conduct Committee to consider opening an investigation.

The latest report on the FRC’s investigation and Constructive Engagement work can be found in the Annual Enforcement Review.

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