The United Kingdom’s Financial Reporting Council, which oversees auditing firms, said Monday it is implementing the recommendations of an independent review of sanctions for auditors, accountants and actuaries, which include increasing the fines to £10 million ($14.1 million) or more for “seriously poor audit work” by a Big Four firm.
Other changes in the sanctions regime by the FRC include exclusion from the accounting profession for a minimum of 10 years for dishonesty, greater use of nonfinancial penalties, and sanctions that reflect the level of cooperation by respondents.
The independent review of sanctions was undertaken by a panel chaired by a former appeals court judge, Sir Christopher Clarke, which delivered a report last fall making the recommendations (see U.K. regulator recommends stiffer fines against Big Four audit firms). The action comes after recent accounting scandals at U.K. companies such as Tesco, BT and Carillion.
The FRC offered some guidance on determining the seriousness of the offense. “In deciding which sanction or combination of sanctions to impose, a Decision Maker should have regard to the principle of proportionality,” said one of the sanctions policy documents it issued Monday for auditing enforcement. “In assessing proportionality, a Decision Maker should consider whether a particular sanction is commensurate with the circumstances of the case, including the seriousness of the breach of the Relevant Requirements found and the circumstances of the Statutory Auditor or Statutory Audit Firm concerned. The seriousness of the breaches found should be determined by reference to a number of factors. These include the nature of the breach, the level of responsibility of the Statutory Auditor or Statutory Audit Firm in the breach of the Relevant Requirements and the actual or potential loss, financial detriment or harm caused by the breach, including harm to investor, market and public confidence in the truth and fairness of the financial statements published by Statutory Auditors and Statutory Audit Firms. The extent to which intent, recklessness, knowledge of the risks or likely consequences, negligence or incompetence are involved will vary.”
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