The U.K.’s accounting watchdog, the Financial Reporting Council (FRC), has now levied more fines in two days than it has in the entirety of 2017, according to Bloomberg reports on Tuesday (June 19). The FRC issued fines totaling $19 million against PricewaterhouseCoopers (PwC) and KPMG last week, while the regulator also sent KPMG an unprecedented warning that its auditing processes are subpar.
The newly aggressive tactics suggest the FRC took note of criticism by policymakers that the regulator was ineffective and “toothless” to address substandard auditing by the nation’s Big Four auditors: KPMG, PwC, Ernst & Young and Deloitte. Scrutiny of the FRC ramped up earlier this year, following a government probe into the collapse of contractor Carillion. The watchdog and the nation’s pensions regulator were “united in their feebleness and timidity,” a U.K. Parliament committee found, adding that the FRC identified issues with Carillion accounts in 2015, but failed to act on them.
There is an independent investigation underway into the effectiveness of the FRC, reports noted.
Some policymakers noted that, despite the heightened fines, the FRC still isn’t doing enough to curb inadequate accounting and auditing processes. For example, Labour Party MP Frank Field is calling for the recent fines against PwC to be heightened, reports said.
Meanwhile, other lawmakers have called on the FTC and the U.K.’s Competition and Markets Authority to consider breaking up the Big Four. Michael Izza, head of the U.K. Institute of Chartered Accountants in England and Wales (ICAEW), told Bloomberg that the FRC’s decision to levy greater fines may actually hurt the accounting and auditing industry competition because they scare smaller players away.
“The risk in imposing ever-greater financial sanctions is that these increase the risk profile of auditing,” he said.
A spokesperson for the FRC said, “We have increased the number of staff in our enforcement division in recent years in order to process cases quicker and to undertake the volume of cases we take on.”