PracticeAuditToothless FRC needs some bite

Toothless FRC needs some bite

When the Accounting Investigation and Discipline Board recently revealed that it is to look into Deloitte’s 2003 audit of the stricken car manufacturer MG Rover, salacious headlines flooded the broadsheets the following day.

The national press talked of a potential ban from auditing in the UK for the
Big Four firm or an unlimited fine.

Obviously, such drastic measures are a long way down the line if, and it is a
big if, Deloitte and its partners are found to have done anything wrong in
relation to the audit or provision of other advisory services to Rover.

An action of this magnitude would also be the first evidence of regulatory
teeth from the various parts of the new, beefed-up, regulator of the accounting
profession.

The Financial Reporting Council has so far given UK accountants a clean bill
of health in the year and a bit it has existed in its new form.

The June report from its audit inspection unit, looking into the work of the
Big Four, largely gave the firms a green light to carry on as they were, albeit
with some minor recommendations. It even banished concerns over conflicts of
interest on provision of non-audit services.

Earlier this month the Financial Reporting Review Panel said that it had
found ‘no evidence of systematic weakness’ in the 226 sets of accounts that it
had studied as part of its new proactive remit.

This may be all well and good, but concerns that surfaced around the time of
the AIU report about its independence and thoroughness will only have been
deepened by this turn of events.

The feeling is growing in some quarters that the FRC is soft on the
profession, which is a tad unjustified if it is thoroughly investigating these
situations and finding nothing doing.

Nevertheless the pressure for the FRC to deliver something tangible,
something that will prove it is a body with bite, is mounting, and this could
put AIDB executive counsel Cameron Scott in a tricky position.

While Deloitte would be no doubt delighted if the investigation found that
there was no case for the firm to answer, such a declaration could raise yet
more eyebrows in the financial world over the job that the FRC is doing.

If the regulator becomes widely regarded as being ineffective or unwilling to
punish, we may see the government stepping in to take over the responsibility.

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