The world’s Big Four accounting firms will face potential fines of £10m or more for serious rule breaches from June, double the record penalty to date.
The Financial Reporting Council (FRC) said on Monday that it has accepted the findings of a study in November by former judge Christopher Clarke, which recommended much bigger fines for serious misdeeds by the world’s biggest accountants.
Larger fines are part of the FRC’s push to bolster its credibility after being heavily criticised by MPs for being too slow to take on the big accountants caught up in company scandals.
Under the FRC’s disciplinary procedure, it sets out a case against an auditor or individual accountant at an independent tribunal before asking the tribunal to set a fine at a specific level. The record amount agreed by a tribunal so far is £5.1m for PwC over its audit of RSM Tenon.
Clarke recommended an increase in fines to £10m or more for seriously poor audit work from a Big Four accounting firm, meaning PwC, KPMG, EY and Deloitte, who check the books of most international blue-chip companies.
The FRC also accepted other recommendations from Clarke to make greater use of non-financial penalties and to exclude dishonest auditors from the accounting profession for at least 10 years.
However, fines will be discounted in line with the level of cooperation during an investigation to encourage early settlement, the FRC said.
A £10m fine is still small compared with penalties imposed by the Financial Conduct Authority for breaches of financial rules.
Britain’s ICAEW accounting industry body has already warned that exacting retribution through big fines could harm the marketplace by prompting some firms to quit auditing.
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