Two months after the independent review panel was set up, the chair, Sir Christopher Clarke, has announced an eight-week public consultation setting out a series of probing questions to assess the effectiveness of the current sanctions regime for audit firms. The panel aims to complete its review by the end of September and will make its recommendations to the audit watchdog this autumn.

The review will consider a number of issues relating to sanctions under the Accountancy Scheme, the recently introduced Audit Enforcement Procedure (AEP) and the Actuarial Scheme, including:

• whether the reasons for imposing sanctions remain appropriate;
• the fairness and the effectiveness of the range of sanctions available under the above enforcement procedures;
• whether the financial penalty sanctions are adequate to deter and protect as articulated in the sanctions guidance or, having regard to fairness, should they be strengthened, eg, by inclusion of a penalty tariff in the guidance; and
• the appropriateness of the current supporting policy and guidance material.

The FRC is calling on all interested stakeholders to contribute to the project.

The independent review panel was set up in March 2017, chaired by former Court of Appeal Judge, Sir Christopher Clarke, and comprising Peter Chambers and Andrew Long who bring extensive subject matter and regulatory expertise.

Adequate penalties?

One of the issues under consideration is whether the current sanctions and penalties are adequate and act as a deterrent to misconduct and poor audit standards. It is also gauging views on whether:

• failures of the type covered by the procedures require greater censure than is currently given;
• the fines and penalties are commensurate with the revenue or profit earned by accountancy/audit firms or with the impact of the failures being sanctioned;
• penalties are insufficient to incentivise either high quality audit work/compliance with rules, regulations and standards; and (d) whether the sanctions promote public confidence.

The release of the consultation coincides with the announcement that Big Four audit firm PwC and a retired audit partner involved in the audit of social housing provider Connaught have  been issued with a record fine of £5m over misconduct related to the organisation’s audits before its collapse in 2010.

The review panel will analyse the responses received and set out its findings and recommendations in a report for FRC due this autumn.

Deadline and consultation document

The deadline for responses to the consultation is 30 June 2017.

The 22-page Independent review of the Financial Reporting Council’s Enforcement Procedures Sanctions Review Panel call for Submissions is available  independent_review_of_frc_enforcement_procedures_sanctions_-_may_2017_003.pdf

Responses should be sent by post to Noranne Griffith, review panel secretary at the FRC, 125 London Wall, London, EC2Y 5AS or by email to [email protected]