Firms vent fury over disciplinary costs

Cameron Scott, AADB Executive Counsel

Cameron Scott, AADB Executive Counsel

Firms are set for a major clash with the UK accounting regulator over plans
to discipline members of the profession over breaches of guidance, as well as
accounting standards.

The UK’s major firms – believed to include the Big Four firms and the next
tier down as well – have been in joint talks over the changes, which will also
make it near impossible to reclaim costs from the Financial
Reporting Council
in the event of its charges not sticking.

The CBI is expected to be drawn into the issue over concerns about the likely
impact the changes will have on company directors.

The change to the rules means that professionals could be reprimanded for
breaches of ‘guidance’ as well as breaching standards, a move that some say is
tantamount to introducing rules-based accounting. Until now, only a standards
breach would have been punishable.

A Big Four source said: ‘It appears they wish to make a new test, that if you
breach guidance, you can be held at fault under new the new regime.’

‘If you create an environment which makes a breach of guidance a cause for
the Accountancy and Actuarial Discipline Board to follow
up with action, then all you will do is force auditors to box tick against
standards and guidance. It will result in greater costs and be part of a very
worrying fundamental shift,’ the source said.

A separate source at a firm outside the Big Four said: ‘There’s a balance to
be struck for what’s in the public interest. To allow the bar to be lowered so
low that anything very minor is sufficient for complaint doesn’t strike one as
natural justice.’

The regulator is now creating an environment ‘in which it can’t lose’, one
source said, referring to the costs issue.

Deloitte audit partner Martyn Jones said costs awards were useful: ‘This puts
a check on actions being brought unnecessarily and the onus on prosecutors to
really get their facts and their case straight before potentially wasting the

Will Twidale of Farrers & Co, who acted for former
Mayflower finance director David
– tried before the AADB and found innocent – said the costs changes
would mean the accountancy profession was out of line with other similar
disciplinary procedures.

On the question of guidance, An FRC spokesman said:’If you don’t comply with
principles, then don’t you think you should be subject to disciplinary
proceedings ultimately. There is a range of acceptable professional judgements
but if you’re outside that, we would argue you should be subject to disciplinary

‘If accountants choose to be very rigid in their behaviour as result of this
then that’s something standard setters will have to take into account.’

The FRC also hit back over what it described as ‘un-level playing fields’ in
relation to costs.

‘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.

‘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. We can say there
is now an un-level playing field which pits us with £11m budget against big
accounting firms with hundreds of millions in revenues and insurance to boot.

‘If we behave badly we should be punished, that’s why we’re saying

‘But if we don’t we should not be forced to hold back in pursuing
public-interest cases out of fear of ruinous costs,’ the spokesman said.

Further reading:

the AADB’s proposal to change its scheme here

FRC manoeuvres to lower legal costs

Firms’ fury at tribunal costs plan

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