Record £48 million in fines imposed by the UK Watchdog on accountancy firms

Britain’s accounting watchdog, the Financial Reporting Council (FRC), imposed a record £48.2 million in fines last year, completing a number of high-profile investigations, including audits of Carillion and London Capital & Finance.

The FRC, responsible for overseeing the nation’s audit and accounting firms, surpassed the previous record of £46.5 million set in the 2021-2022 financial year. This sharp increase in fines demonstrates the watchdog’s growing assertiveness ahead of the transition to the more robust Audit, Reporting and Governance Authority, which the Labor Party has pledged to prioritise.

After applying early admission and collaboration discounts, accounting firms paid £33.1 million in fines, up from the £28.5 million paid last year but still less than the record £34.6 million in 2021-2022. Despite only eight fines being issued last year – the fewest since 2020-21 – the cases were remarkably high-profile, with Carillion being the most significant.

Carillion, a construction and services contractor, collapsed in 2018, prompting an FRC investigation into its accountant, KPMG. The investigation revealed deficiencies in KPMG’s audit processes, resulting in a record fine of £30 million, which was later reduced to £21 million due to the firm’s admissions and cooperation.

Other major punishments included fines for EY, PwC and the smaller accountancy firm Oliver Clive & Co, in connection with their work at London Capital & Finance, the defunct investment group involved in a major retail savings scandal. PwC and EY were each fined £7 million, reduced to £4.9 million and £4.4 million respectively, while Oliver Clive was fined £60,000, reduced to £42,000.

Elizabeth Barrett, Executive Director of Enforcement at the FRC, commented: “The past year has been notable for the conclusion of several high-profile and complex cases at the FRC. The FRC will continue to prioritize fair, robust and proportionate enforcement outcomes to maintain confidence in financial reporting and audit, which underpins confidence to invest in UK businesses and in turn the UK’s economic growth and international competitiveness.

Accounting firms have often criticized the FRC for the length of its investigations. However, the regulator reported improvements: eight of the nine completed investigations last year were completed within three years, a marked improvement on previous years.

The FRC launched six new investigations last year, leaving 35 ongoing investigations, up from 38 the summer before.