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The UK accounting watchdog will review how it investigates misconduct at firms, including reviewing publishing findings and developing “broader” tools to use in place of some probes.
The Financial Reporting Council said on Thursday that an “end-to-end” review would consult on its investigation processes, examining every step of a probe from when one is triggered to publication of the outcome.
The review will consider whether the FRC should use “a broader and more graduated set of options” to resolve misconduct in some circumstances when an investigation might normally take place.
But the watchdog insisted in its annual plan that investigations would “remain an important part of our regulatory toolkit”.
The review signals a shift in how the regulator responds to audit failures following a period of heightened scrutiny after multiple high-profile corporate collapses, including at outsourcer Carillion and retailer BHS, which fuelled concerns over audit quality.
After those failures, the FRC sharply increased fines, which totalled £48.2mn in 2023-24, and backed a long-standing drive to turn the regulator into a more powerful Audit, Reporting and Governance Authority. Long-awaited legislation to create the new body is expected to be presented to parliament before the summer.
But accounting firms have privately complained about complex and burdensome questions from the regulator during lengthy investigations that they say tie up key partners and place them under stress.
Some 47 per cent of FRC investigations took more than two years to complete, according to figures published in 2024, while 12 per cent of investigations took more than three years.
Alan Vallance, head of the Institute of Chartered Accountants in England and Wales, told the Financial Times last month that lengthy probes were holding back firms where partners were under investigation.
“Three years [is] a really long time . . . We need to have a conversation about [it]: is there a different way? Because those things tie people up for very long periods of time,” he said.
Richard Moriarty, FRC chief executive, told an audience in London on Wednesday that “as important as inspection is . . . we need to put more weight in our regulatory approach on how services themselves manage and assure their own quality management systems”.
Speaking at a launch event for the Centre for Public Interest Audit, a policy and research group set up by accounting firms, Moriarty signalled discomfort with the “public expectation that [audit] professionals can be held to account for serious or significant failings”.
Accountants should not be blamed for a company’s failures and regulation must take a “much more nuanced” stance, he added, noting that the FRC’s “direction of travel” would put more emphasis on the whole firm rather than the individual auditor leading the audit being investigated.
The regulator had consulted on its review of investigations in its draft annual plan in December, and will consult further on the changes in the autumn.
