Fines against UK accounting firms are likely to go to the government in future, after two industry professional bodies said they were open to reform of a system that has paid them more than £50mn in the past two years.
Last week, KPMG agreed to pay £18.7mn in fines and costs after an industry tribunal ruled that auditors at the Big Four firm had dishonestly misled regulators by creating “false documents” relating to collapsed outsourcer Carillion and another UK company.
The money will be paid to the Institute of Chartered Accountants in England and Wales, because the regulatory action was brought under a 2004 rule book known as the accountancy scheme.
The scheme, already in line for reform, has been used less frequently in recent years but is under renewed scrutiny after record fines against Deloitte and KPMG resulted in big payments to the ICAEW.
The fines in the cases were paid to cover the costs of the Financial Reporting Council investigations and those of other unsuccessful probes, all of which the ICAEW had funded. But the magnitude of recent penalties means it is likely to have been left with a large surplus.
The arrangement has led to concerns that the fines could benefit KPMG and Deloitte — both of them institute members — and that the money would have been better used to compensate pensioners, contractors and other victims of the scandals.
The ICAEW received more than £16mn in fines and costs from KPMG over a conflict of interest in the insolvency of bedmaker Silentnight, which cost pensioners millions of pounds. It also received a record £21.6mn from Deloitte in 2020 for serious failings in its audits of Autonomy, the collapsed software company founded by British businessman Mike Lynch.
The remission of accountancy scheme fines to professional bodies is at odds with the “audit enforcement procedure”, a rule book introduced with the backing of legislation in 2016 and under which most audit-related misconduct is now prosecuted, with fines paid to HM Treasury instead of to professional bodies.
The ICAEW, which has 189,500 individual members globally, said on Wednesday that it would “welcome a rationalisation of the different schemes which now exist to pay for this aspect of the FRC’s regulatory work”.
“We do not believe that any of the professional bodies would object to being removed entirely from the funding process, with all fines in future going to HM Treasury,” it said, adding that it would be happy to discuss this with the government and the regulator.
The Association of Chartered Certified Accountants, which has 233,000 fully qualified members globally, said it believed no organisation should “profit” from fines levied by the FRC and that the money should be used to fund future enforcement actions.
Mike Suffield, the ACCA’s director of professional insights, said the body was not “wedded” to the penalties being paid to the professional bodies. The precise mechanism for using fines to fund further regulatory action was “open for discussion” with one option being to have the levies paid to the Treasury and then redirected to the FRC, he added.
“We absolutely understand the concerns being expressed around current arrangements, in an environment of more frequent and sizeable fines, and the broader agenda for reform to the regulatory system provides an opportunity for this to be addressed,” said Suffield.
The ICAEW said previously that the fines were “not a windfall” because the funds were used to cover the costs of investigations, including some that did not result in financial penalties.
Proceeds from the fines were held as part of its reserves “to fund strategic projects that address public interest matters and support the development of the wider profession”, it said.
