The Financial Reporting Council v Sports Direct International plc
11 September 2018
The High Court has held that the production of documents to a regulator by a regulated person, solely for the purposes of a confidential investigation by the regulator into the conduct of the regulated person, is not an infringement of the legal professional privilege of a client of the regulated person in respect of those documents. The High Court also held that the same was true of the production of documents to the regulator by a client of the regulated person.
The judgment is the first to consider the FRC’s powers pursuant to the Statutory Auditors and Third Country Auditors Regulations 2016 (“SATCAR”
). It concerns the FRC’s first application to the High Court for an order against an audit client in respect of the client’s failure to comply with a statutory notice requiring the production of documents, pursuant to SATCAR and the FRC’s Audit Enforcement Procedure.
The full judgment is available here
Notes to editors:
- The FRC’s mission is to promote transparency and integrity in business. The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries. As the competent authority for audit in the UK the FRC sets auditing and ethical standards and monitors and enforces audit quality.
- To meet its responsibility as the competent authority in respect of audit enforcement, the FRC operates the Audit Enforcement Procedure. This procedure applies to the investigation and sanctioning of breaches of the various requirements of the statutory auditors of Public Interest Entities (PIEs) and any other cases retained by the FRC including AIM companies with a market capitalisation in excess of €200m.
In brief, the stages of the Audit Enforcement Procedure are:
- Initial case examination and decision to investigate
- Decision by Executive Counsel as to whether to issue a Decision Notice (a notice with the findings and recommended sanction);
- Referral to Enforcement Committee and decision by the Enforcement Committee whether to issue a Decision Notice; and
- Referral to a Tribunal
- In order for a matter to be referred for investigation by the FRC’s Executive Counsel under the Audit Enforcement Procedure, the FRC’s Conduct Committee is required to decide whether there is good reason to investigate an Allegation in relation to a Statutory Auditor and/or a Statutory Audit Firm.
Investigations are usually conducted by Executive Counsel and the Enforcement division. The FRC’s Conduct Committee may direct that the investigation is delegated to a Recognised Supervisory Body (RSB) which will provide an investigation report to the Executive Counsel so that (s)he may decide whether to issue a Decision Notice.
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