Fines on UK accountants rise sharply

The UK accounting watchdog levied more penalties in 2017 than in the three previous years combined as it piled pressure on large audit firms to stamp out misconduct or face even higher charges.

The surge in penalties, which totalled £15m in 2017, came on the back of a string of scandals involving well-known firms that increased the pressure on the Financial Reporting Council to take a tougher stance.

The watchdog imposed fines of £6.9m in 2016, £4.7m in 2015 and £1.4m in 2014, bringing the total over the three years to £13m.

In a strategy document published on Tuesday the FRC said it had taken “robust enforcement action” in 2017 as “public confidence in business depends not just on regulators monitoring standards but on auditors, accountants and actuaries being held to account”.

PwC was handed the two largest fines — £5.1m and £5m — this year. The bigger penalty was handed down when the FRC uncovered “extensive” misconduct by PwC in its audit of RSM Tenon, a professional services group that was put into administration in 2013.

EY was fined £1.8m in October for misconduct relating to its audit of the British unit of Tech Data, which the watchdog said “fell significantly short of the standards reasonably to be expected”.

James Rakow, a Deloitte partner, agreed in August to a fine of £75,200 after admitting to misconduct over advice he provided to a Lloyd’s of London insurer in 2008 and 2009.

Karthik Ramanna, a professor of business at the University of Oxford’s Blavatnik School of Government, said the increase in fines would help deter misconduct. But he added: “The scale of the fines must be large enough to put a dent in partners’ bonuses. Further, the fines must be targeted not just at the audit firms as a whole but also at individual wrongdoers.”

The FRC has previously faced criticism for the low level of fines it issues when compared with other international regulators. However the watchdog is considering whether to raise the level of fines it issues to big four firms to more than £10m.

This follows the publication of an independent review in November that recommended the FRC issues harsher penalties when it uncovers serious misconduct by auditors.

“Moving beyond the fines, the audit firms will need to seriously reinvest in a culture of integrity,” Mr Ramanna added. “If rank-and-file auditors see fines being paid on such a regular basis, it normalises this deviance and turns the fines into mere ‘fees’ for access to greater profits.”

Madison Marriage