Accounting watchdog doubles fines in misconduct clampdown

The UK accounting watchdog has nearly doubled the level of fines it has issued in the latest financial year, as politicians and investors push for a tougher approach to misconduct.

Fines issued by the Financial Reporting Council rose from £6.8m in the 12 months to the end of October 2016 to £12.8m this year after the watchdog issued two record-breaking penalties.

This included a £5m penalty for PwC in May — then the largest ever given by the watchdog — for “misconduct” in relation to the audit of Connaught, a FTSE 250 social housing maintenance group that was put into administration in 2010.

PwC subsequently received another record-breaking fine in August of £5.1m for “extensive misconduct” relating to the audit of RSM Tenon, a professional services group put into administration in 2013.

In contrast, the average annual fines imposed by the regulator between 2011 and 2014 were just £1.1m.

However, the FRC’s fines remain a fraction of those issued by other regulators such as the UK’s Financial Conduct Authority.

The FCA fined German lender Deutsche Bank £163m in January, and its largest ever fine was £284m against Barclays in 2015.

Erik Gordon, assistant professor at the University of Michigan’s Ross School of Business, said: “It is surprising [accountancy firms] are not more severely penalised than they currently are. The damage to investors, including retirees, [of misconduct] is far larger than the fines imposed.

“Regulators could encourage auditors to put more emphasis on compliance by imposing more bans from the profession. The personal career threat of being banned from the profession for five years or even for life would cause the individuals who do the work to think twice about compliance.”

The fines have also been far smaller than the annual fees accountancy firms can earn from blue-chip clients, which often reach tens of millions of pounds.

“You cannot expect fines to have much effect when auditors face the choice of…

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