44% growth in FRC Enforcement Division
29 July 2021
The Financial Reporting Council has today published its third Annual Enforcement Review
The report reveals the FRC’s Enforcement Division has grown by 44% in the last year, to enable the swifter resolution of cases, while the number of investigations opened also increased.
The report highlights the FRC’s continued focus on driving audit quality improvements, with a record number of cases resolved through constructive engagement, up from 31 to 48. In matters which have been subject to enforcement action, 28 non-financial sanctions have resulted, including an unprecedented number of requirements and conditions. These have included requirements for audit firms to undertake root cause analysis to ensure the underlying reasons for any failures are swiftly addressed and for training programmes to be implemented in areas of identified weakness.
Financial sanctions continue to play an important role, with the total value of sanctions increasing from £16.5m to £16.7m including a £15m sanction imposed by an independent Tribunal against Deloitte for its audit of Autonomy – the highest financial sanction imposed to date in any FRC case.
The report notes the significant progress which has been made over the year in some of the Division’s most high-profile cases, including the delivery of Initial Investigation Reports in both Carillion audit investigations, while in the Silentnight matter the independent Tribunal made findings of Misconduct in relation to serious ethical issues.
Elizabeth Barrett, FRC Executive Counsel and Executive Director of Enforcement said:
"We have had a busy and productive year against a challenging background with significant progress on key cases. We have also invested in substantial growth of the Division to support future delivery of more timely outcomes in holding to account those responsible for the preparation and audit of financial statements who fall short of the required standards.”
The report again offers a thematic review of past cases and this year the spotlight falls on accountants in business. It reveals the various methods of misleading financial reporting encountered as well as misconduct relating to the fraudulent use of company funds and misleading of audit committees and auditors.
Looking to the future, the review considers the challenges for the preparers and auditors of financial statements posed by ongoing uncertainties due to Covid-19, Brexit and climate change. It also notes the consideration being given to the implications of the legislative proposals in the Government’s white paper Restoring Trust in Audit and Corporate Governance
and the FRC’s continued work with Government during the consultation and implementation process.
A link to the Annual Enforcement Review is available here