July 31, 2025 Learning from the FRC’s Annual Enforcement Review
At the end of July 2025 the Financial Reporting Council (FRC) published its Annual Enforcement Review. The review, which is in its seventh iteration, reports on investigations raised against accountants, accountancy firms, actuaries, statutory audit firms and statutory auditors. Referrals to the enforcement team tend to come from a variety of sources including whistleblowing, complaints, other FRC teams, and professional bodies. In the year ended March 2025 forty investigations were opened, the same number as in the previous year.
Given the nature of the referrals, the cases tend to be at the higher end of the business spectrum. Nevertheless, some of the issues identified by the examiners could easily apply to any business, no matter how large or small. These include:
- Lack of scepticism. Whilst it is incumbent on an auditor to be somewhat sceptical and to ask open questions, it is also expected that directors will also play their part. This includes ensuring that all financial transactions are fully documented and are supported by ongoing reviews into the purpose and objectives of the organisation. Risk awareness and planning also play their part here.
- Compliance with ethical requirements. The ethical standard requires auditors to meet certain standards of integrity, objectivity and independence in order to ensure that audits are unbiased and provide a fair representation of the state of the company. This is similar to the Companies Act which require directors to act in the interests of the company with regard to employees, customers, stakeholders and others.
- Presentation and disclosure. Knowing why something is done is one thing, being able to document it in a way that is understood by stakeholders is quite another. Auditors and directors need to work together to ensure that the publication of annual accounts and other statements provide a true and fair picture of the organisation.
- Going concern. The old adage that past performance doesn’t guarantee future success fits very well here. Directors should be open to questions from auditors in areas such as the way in which provisions have been calculated and reviewed, and intangible asset worth calculated. Revenue forecasts also need to be deeply questioned, especially in those business spheres which could be impacted by external forces such as tariff changes, geo-political or climate events.
The enforcement regime is itself currently under review with the FRC looking to introduce a graduated range of responses in order to ensure that their approach remains adaptable and market-responsive.
