The changes would extend disciplinary action to those who breach accountancy
‘guidance’ and restrict the paying of costs to defendants found not guilty who
could demonstrate ‘misfeasance’ on the part of the Accountancy and Actuarial
On costs the Big Four claim a breach of ‘natural justice’, and say the
guidance change would turn audits into ‘box ticking’ exercises. But the
Financial Reporting Council, the umbrella body supervising the AADB, has
‘There is a public interest in a regulator being able to bring cases which
need to be brought, and that the regulator not fear ruinous costs if he loses.
That is why the Court of Appeal has made it clear that the normal concept of
‘loser pays’ does not apply in regulatory cases,’ says the FRC.
‘We have put in place procedures to make sure that a defendant who can’t
afford to pay his legal support will have his expenses covered.
‘If we behave badly we should be punished, that’s why we’re saying
misfeasance. But if we don’t we should not be forced to hold back in pursuing
out of fear of ruinous costs.’
On box ticking, the FRC adds: ‘If accountants choose to be very rigid in
their behaviour as a result of this then that’s something standard-setters will
have to take into account.’
The key issue is this: some defendants those from the Big Four are
willing to spend extremely large sums in fighting charges brought by the
regulator. Sums that could cripple the watchdog given the FRC manages with just
£11m a year for all its constituent bodies.
The fact that the FRC is quoting a Court of Appeal ruling means it has taken
advice and feels confident of its position. Indeed the comment could be seen as
a coded challenge: take us on in court if you dare. There’s also a possibility
that the regulator could argue that it has something akin to a contractual
relationship with accountants through their professional bodies, something the c
ourts could be reluctant to challenge.
Both will give the firms food for thought when considering whether they want
to go beyond just making a lot of noise.