FRC launches End-to-End review of its AEP Enforcement Process

The FRC has launched an End-to-End (E2E) review of its Audit Enforcement Procedure (“AEP”). As the AEP was originally introduced in 2016, this review aims to ensure that the enforcement process remains efficient, effective, timely, and proportionate against the backdrop of a changing audit landscape. Importantly, the review focuses solely on the AEP and does not extend to other FRC regimes such as the Accountancy Scheme or Actuarial Scheme.

The E2E review of investigation and enforcement process was foreshadowed in the FRC’s recent three-year plan. See our previous post: The FRC’s Three Year Plan: ARGA and Enforcement Refresh.

The review aims to ensure that the AEP remains efficient, effective, timely, and proportionate against the backdrop of a changing audit landscape and the UK government’s mission to promote UK economic growth and investment.

Elizabeth Barrett, the FRC’s Executive Director of Enforcement, in the ‘In Conversation’ podcast, noted that the procedural landscape for auditing has evolved significantly since 2016, highlighting the need for initiatives that inspire trust in high audit standards. The review is seen as a response to this evolution and an opportunity to refine enforcement procedures.

The FRC’s E2E review remains in its early stages, and the FRC has held roundtables with a wide range of stakeholders to understand industry views on their proposals. 

Reforming Investigation Initiation 

The review considers how cases are assessed and how decisions are made as to whether an investigation should proceed. The FRC is revisiting the criteria used to determine whether an investigation meets the “good reason” standard or satisfies “public interest” requirements. These revisions aim to ensure that assessments are conducted with greater rigour, transparency, and proportionality.

Another key area of the review is the refinement of the criteria that establish public interest justifications for investigations. This is of particular relevance to discretionary investigations, such as those involving entities beyond the scope of Public Interest Entities. The FRC intends to apply these criteria more consistently and proportionately across cases, ensuring a structured and coherent approach to discretionary investigations.

The scope of the review extends into the FRC’s Supervision Division. It will touch on horizon-scanning exercises to identify potential enforcement actions and evaluate the threshold criteria for commencing investigations. The review will also consider whether intermediate measures beyond constructive engagement, but short of full enforcement action, could be introduced as a half-way house. 

Decision Making during Investigations

The FRC is also examining its approach to key decisions made during the investigation process. This includes improving the governance structures that guide investigations and refining how cases are resolved whether through settlement or escalation to tribunal hearings. The review seeks to strengthen oversight mechanisms and provide clarity around the roles of decision-makers within these processes to improve the overall framework. 

Alternative ‘Fast Track’ Procedure 

One proposal under consideration is the introduction of a fast-track procedure for certain lower-risk cases, which would enable them to be resolved without undergoing the full enforcement process. In addition, existing frameworks are being reviewed to accelerate investigation timelines while safeguarding the fairness and integrity of enforcement actions.

Publication Processes

Transparency is a critical consideration in the review, and the FRC is rethinking how information related to investigations is published. Proposed changes include introducing discretionary announcements when investigations commence, alongside mandatory announcements of investigation outcomes. The FRC is also exploring ways to tackle delays in the publication of outcomes, ensuring a balance between thorough disclosure and timely communication.