Big Four face regulatory fines of £10m after independent review urges watchdog to get tough

Oliver Gill
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Details of an independent review into the Financial Reporting Council were released today (Source: Getty)

The UK's top accounting watchdog has been told to get tough on Big Four auditor failings, with an independent review released today urging it to double already record-high fines.

But the recommendations were slammed by a leading chartered accountancy body, which said they could “harm the economic functioning of the marketplace”.

A review of the sanctions handed out by the Financial Reporting Council (FRC) concluded large audit firms should be slapped with penalties of up to £10m.

The highest fine ever levied by the FRC is £5.1m, imposed on PwC in August for its audit of fellow auditor RSM Tenon in 2011.

There is currently no monetary limit set.

Read more: PwC slapped with record fine for RSM Tenon 'misconduct'

However, Duncan Wiggetts, an executive director for professional standards for the accountancy body the ICAEW, warned of the profound effect such proposals could have on the audit sector.

He said:

There is a very real danger that the urge to exact either noteworthy or material retribution leads to fines so large they harm the economic functioning of the marketplace. Fines that are too demanding substantially change the risk profile of an accounting firm, and the insurability of its trading.

This raises the possibility of a larger audit firm choosing to exit what is already a narrow market rather if the risk becomes too high.

The review was chaired by former Court of Appeal judge Sir Christopher Clarke. Its recommendations also included adjusting the settlement discount provisions to encourage swifter conclusions and to pay greater attention to non-financial penalties.

PwC has twice broken fine records in 2017. In May, it was fined £5m for failings relating to its audit of social housing firm Connaught seven years ago. Prior to that, Deloitte held the unenviable position of being on the receiving end of the highest FRC fine. In November 2016 it was fined £4m in connection with the audit of collapsed aircraft parts wholesaler Aero Inventory.

The review recommended the FRC tribunals – which decide on the level of fines imposed – do not use the last highest benchmark as a guide for penalties.

Read more: Deloitte fined a record £4m by accountancy watchdog

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