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FRC’s future ‘under review’

03 May 2018

A massive review of how the the Financial Reporting Council works has been promised, as the government unveils an independent inquiry into its whole operation.

Business Secretary, Greg Clark, has said he is ordering a review into the accountancy watchdog, which has been criticised for not being tough enough on the auditors and firms who fail to spot problems at companies that later collapse.

Created in 1990, the FRC has come under increasing pressure following the collapse of BHS and now Carillion. Concerns were raised when it cleared KPMG over the audit of HBO, and it took 12 years to fine Deloitte over MG Rover failings.

Although it has been pointed out that the FRC is the only body that actually gained a conviction over the MG Rover debacle.

FRC’s CEO Stephen Haddrill told the Financial Times in mid-March that it had changed its mind and now believed that it may have to force the Big 4 firms to hive off their auditing divisions into ‘audit only’ firms. He also admitted he is in talks with the Competition & Markets Authority about opening a new investigation into the audit market.

Haddrill said the FRC should have adopted a more proactive approach to its early enquiries into HBOS. In a letter to the Treasury Select Committee he said it should have stepped forward, rather than relying on other regulators to do their job first. Haddrill said he had taken onboard the criticism that the FRC has “too many people with a background in the major accounting firms ‘we regulate’. He said the FRC was now conducting a further review of this aspect of its governance.

New £10m fines for seriously poor audit work were put forward in early 2018 by the independent review into the FRC’s enforcement sanctions. The recommendation was an almost doubling of current fines.

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