THE EU’s audit and regulation directive is likely to cause a discrepancy in the application of disciplinary measures taken against directors implicated in misconduct, according to the FRC.
In a speech given to the Grant Thornton Conference at the The Law Society in London this week, FRC chief executive Stephen Haddrill said he had hoped the government would widen the scope of the legislation to allow the body to hold all directors whose conduct fell below acceptable standards responsible, not simply those holding accountancy qualifications.
“That does not mean they will escape sanction as other regulators may act under company law or financial services legislation,” he said. “But the cases will be separate and the relative responsibilities of the different parties will not be fully tested in the same courtroom.”
He also raised the question of whether the FRC’s power to sanction directors who are members should be restricted to directors of public interest entities who have input in the preparation of financial statements.
“This would restrict the scope of the independent regulation and we believe will need careful consideration, not just within the profession but through public consultation,” he added.
“The new legislation is therefore not leading to a level playing field between professionals and directors and, indeed, it is hard to see how any legislation that relates to the roles of different individuals rather than to their actions could do so.”
He added the public expects high standards – or “moral courage” – from auditors than ever before, but warned that while the FRC is committed to a principles-based approach, it can “lead to more uncertainty when it comes to their enforcement, particularly as there is very little case law to aid interpretation”.
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