FRC ‘showing real teeth’ in record year for fine – London Business News
Figures published last month show that the Financial Reporting Council imposed upon auditors a record £46.5m in fines in the 12 months leading up to March this year.
In light of the negative headlines plaguing the industry, PwC boss, Kevin Ellis, stated in December last year that they were making the sector increasingly unattractive to work in. However, Chris Biggs, CEO and Founder of accounting and consultancy company, Theta Global Advisors , argues that everyone in the industry has a duty to uphold standards whilst also providing forward-thinking working environments that change perceptions of the sector and make recruiting and retaining staff easier.
A large part of this sentiment was echoed by the chief executive of the FRC, Sir Jon Thompson, who stated that auditors must stop complaining about the fines and simply do a better job to ensure they don’t fall foul of the regulator. This also comes after a series of high-profile failures from Big Four firms involving the audits of household names such as Thomas Cook and BHS, which have caused the FRC to double in size since 2018 and play a much more active role as a regulator. Although the FRC’s annual audit scores recently found that practices had improved at Big Four firms, question marks remain surrounding whether this trend has come as a result of them dropping riskier audits on smaller, challenger firms.
The world of auditing has long been notorious for requiring staff to work long hours with few flexible or hybrid options being put on the table. Although most Big Four firms now offer a number of initiatives in relation to this, PwC recently reported that as a result of a negative spotlight being placed on the industry recently, their attrition levels for newly qualified auditors were 8% higher than in other areas of the business. Not only that, but just 15% of qualified auditors joining their firm were from the UK, demonstrating the difficulties Big Four firms are facing in terms of attracting and retaining talent.
Chris Biggs, CEO and Founder of Theta Global Advisors, discusses the increase in fines from the FRC and outlines how businesses can still attract and retain talent in one of the most competitive recruitment markets on record:
“It’s particularly concerning to see that the FRC registered a record-breaking year in terms of the fines they imposed in the 12 months leading up to March. Naturally, with this coming after a series of high-profile scandals in the preceding years, certain firms are going to come under increasing pressure. However, I certainly don’t see this as a bad thing – there were problems that needed to be highlighted and everyone in the sector has a duty to uphold high standards.
“The obvious way to rectify this is by improving the quality of audits across the board. Not only that, but if firms are experiencing difficulties in terms of recruiting and retaining talent, it would be advisable to review the flexible and hybrid working offerings that are in place, as these have become increasingly important for prospective and existing candidates.
“In relation to audits specifically, whilst on the surface it’s great to see consistent improvement over the course of the last two years among the Big Four, it becomes less encouraging if this is as a result of difficult audits simply being passed on to smaller firms . This responsibility should be shared across the industry, and there also should be measures and controls in place to ensure quality audits when challenger firms do take on difficult audits.
“Possible increased costs and time delays for firms outside of the Big Four performing particularly complex and demanding audits are in some ways to be expected because of shared audits. However, these risks can be managed and mitigated with appropriate structures to facilitate a growth period as these smaller firms gain more experience and resources when working on such projects.”