Legal Professional Privilege cannot be defeated by the FRC’s interpretation of its disclosure regime
Julie Matheson
We are living in unprecedented times. Boris Johnson’s announcements each day, whilst aimed at slowing the growth of the global pandemic which is COVID-19 (Coronavirus), will undoubtedly have a drastic effect on businesses in all sectors.
The world must go on, but how? Vast swathes of the work force (those who can) are working from home. Technology is stepping in to assist with the change in working patterns, but it is not infallible. There is huge pressure on parents, often trying to do two full time jobs whilst looking after small children. With schools closed, there is also the pressure to home-educate children, whilst trying to insulate them from the stress and fear that many adults are experiencing.
Audit firms carrying out statutory audits, with strict timescales, are one of the types of businesses which will feel the effects of this pandemic quite strongly. There are huge restrictions on travel, with the inevitable consequence that client sites are simply inaccessible. There is also the human factor of a workforce which may be reduced in productivity, on both the client’s and auditor’s side, due to the factors I have described. This is on the background of many firms facing an uncertain future, due to the decline in demand and the changing market conditions. In such circumstances, audits become even more important.
The Financial Reporting Council (FRC) acknowledged in a press release on 16 March 2020 that auditors will find the situation extremely challenging. However, it indicated that, “the current situation should not undermine the delivery of high-quality audits…”and that, “Audits should continue to comply fully with required standards.” It explained that additional time should be taken, when required, even if that comes with the risk of delaying company reporting. It set out a number of factors which should be focussed upon, given the likely impact of COVID-19, including:
- the auditor’s risk assessment, and whether any revision to it is necessary;
- how the auditor gathers sufficient audit evidence;
- how group auditors’ work can be assessed against standards, especially when travel is restricted;
- the assessment of going concern, given the likely downturn in the economy;
- the adequacy of disclosures made by management on the impact on the company of COVID-19; and
- the need for the auditor to assess the dynamic nature of the COVID-19 situation, and how evidence of a change in circumstances may be required up until the point of signing the auditor’s report.
Questions were then raised as to how companies could meet strict filing deadlines. On 19 March 2020, Companies House advised that a company could apply for an extension to its filing deadline if COVID-19 had adversely affected its ability to file its accounts in time. An extension must be applied for before the filing deadline, and should be accompanied by any documents which would support the application.
In the event that an audit simply cannot be completed on time, due to human elements, travel or technology, the Government has at least relaxed its rules to ensure that auditors can make alternative arrangements to ensure that its audits are carried out appropriately, professional scepticism is applied and company accounts are accurate and complete.
From the perspective of audited companies, the pressure on their finance functions in the coming weeks and months will be significant. The focus may naturally shift onto the frequent provision of financial information and forecasts, as companies face new pressures every day. Whilst there is a degree of latitude for companies and auditors in finalising and submitting accounts, the message from the FRC is clear: although there are huge other pressures, don’t forget your statutory responsibilities.
About the author
Julie Matheson is a Partner in the Regulatory team, specialising in defending professionals in the financial and legal fields. She has particular expertise in defending accountants and accountancy firms in regulatory proceedings brought by the FRC, ICAEW and ACCA. She also regularly provides advice on FCA conduct issues, particularly under the Senior Managers and Certification Schemes.
Latest blogs & news
Law students: academic misconduct and the SRA early character & suitability assessment
Pursuing a career in law is already a significant challenge without the added stress of worrying whether past mistakes could block your path to becoming a solicitor. Early-life convictions, cautions, academic disciplinary actions, or financial issues may all impact your eligibility for admission by the Solicitors Regulation Authority (SRA).
New UK crypto regime takes a step closer
HM Treasury has published a draft statutory instrument which, when brought into force, will introduce a new regulatory regime for cryptoassets in the UK.
Is the FCA’s name and shame policy now dead in the water?
On 6 February the House of Lords Financial Services Regulation Committee published its response to the latest iteration of the FCA’s proposals to “name and shame” firms under investigation by the regulator.
Changes for accountancy firms to keep a close eye on in 2025
From an increasing spotlight on private equity investment to substantial changes in the ICAEW’s Code of Ethics, 2025 is shaping up to be a year filled with both opportunities and challenges for the accountancy and audit sector. What key areas should accountancy firms keep a close eye on over the coming year?
Festive frolics or regulatory wrongs in accountancy firms?
Best practice guidance to accountancy firms on how to conduct an investigation in the event of allegations of behavioural misconduct in the run-up to Christmas.
Festive frolics or regulatory wrongs in accountancy firms: a three-part podcast series
T’is the season of the office Christmas party – but accountants must be aware that their behaviour in this professional setting may still be caught by their regulator’s Code of Ethics.
Finfluencers – in the FCA’s sights
In March 2024 the FCA published a clear warning to those advertising trading and investments on social media about the risks of doing so, making it clear that it will “will take action against those touting financial products illegally.” Just two months later, in May 2024, the regulator announced that it had commenced criminal proceedings against a number of individuals for advertising foreign trading schemes on their social media platforms.
Motor finance: FCA drives towards formal redress scheme
The FCA is conducting a review into whether motor finance customers were overcharged as a result of the widespread use of discretionary commission arrangements in the motor finance industry. It had expected to set out its next steps in light of this review in September 2024. However, it has announced that it will not now do so until May 2025.
Market abuse letters - an increasingly used tool
Maintaining the integrity and cleanliness of the financial markets remains a key FCA priority and, indeed, is a statutory legal obligation on the regulator. Against that, however, is the fact that FCA’s track record in taking enforcement action against insider dealing and other forms of abusive behaviour is relatively poor. Since 2017 it has only achieved three criminal convictions for insider dealing, whilst its record for imposing civil fines on firms and individuals for breaches of the Market Abuse Regulation (“MAR”) is also unimpressive.
FCA's Anti-Greenwashing Rule Takes Effect: What It Means for Compliance and ESG Accountability
The FCA’s long awaited anti-greenwashing rule came into force on 31 May 2024. This rule is part of the wider Sustainability Disclosure Requirements regime and reflects the FCA’s strong commitment to ESG and to supporting the Government’s commitment to achieving net zero by 2050.
FCA’s plan to “name and shame” firms should be urgently reconsidered
The FCA’s recent consultation (CP24/2) on changes to its enforcement process has provoked what appears to be unanimous opposition from government and industry bodies. Of particular concern is the proposal in consultation paper (“the CP”) that the FCA will publish information about its enforcement investigations, including the identity of the subject of the investigation, where it assesses it to be in the public interest to do so.
Immigration issues and the regulatory consequences for financial services firms
For firms regulated by the Financial Conduct Authority (FCA), it is vital that the business – and its relevant employees – ensure that its conduct is without reproach in order to avoid supervisory or regulatory difficulties. This extends to issues of governance and administrative matters, as well as more obvious issues of conduct (such as, for example, financial misconduct) which often receive more press.
Bankers’ bonuses uncapped
This article first featured in Employee Benefits in November 2023.
Three recent cases raise questions over FCA enforcement strategy
A recent sequence of adverse decisions by the Upper Tribunal could have significant implications for future Financial Conduct Authority cases.
FRC’s Scalebox: a welcome helping hand for mid-tier firms
Yesterday the FRC launched the pithily-titled “Scalebox” initiative to help smaller firms which carry out audits in the Public Interest Equity (PIE) market. Firms within Tier 2 and Tier 3 for FRC Supervision and those firms which intend to enter the PIE audit market can now join the Scalebox to receive additional guidance from the FRC.
The senior managers certification regime (SMCR) – fitness and propriety
Under the Senior Managers and Certification Regime (“SMCR”), which was introduced by the Financial Conduct Authority (“FCA”) to seek to remedy perceived industry wide failings following the 2008 financial crash, regulated staff must meet certain standards of fitness and propriety and will be personally accountable to the FCA for any failure to do so.
Firms covered by the SMCR are required to assess, both at the point of recruitment and on an annual basis, whether SMCR staff are fit and proper to perform their role. In the case of senior managers, firms that are covered by the regime must also seek approval from the FCA prior to appointment and in many cases the FCA may wish to closely scrutinise any such application.
Non-financial misconduct under the Senior Managers and Certification Regime
Non-financial misconduct has been an area of increasing regulatory focus for the Financial Conduct Authority (FCA) over the last five years. To date, published regulatory outcomes have focused on the most egregious end of the spectrum, with the FCA handing out bans and fines for those already convicted in the criminal courts of serious sexual offences. However, these cases provide little guidance for FCA-regulated firms grappling with allegations of more nuanced conduct, such as the inappropriate use of social media on a personal
What's on the horizon for audit and accountancy regulation in 2023?
Against a volatile geopolitical and economic backdrop, 2023 is shaping up to be another critical year for the accountancy and audit regulatory landscape. In these interesting and challenging times, what should firms and professionals operating in the accountancy sector expect to see on the horizon for the year ahead?
Deadline looms for previously passported firms to apply for UK authorisation
Pre-Brexit, some 8,000 financial services firms based in the EA or EEA relied on the mutual passporting regime to do business in the UK. Since 1 January 2021, such firms have been able to operate under a transitional temporary permissions regime (TPR). While some of those firms have now exited the UK market, most of those intending to continue to operate here are required to apply for full UK authorisation. The deadline for applications is 31 December 2022.
The FCA’s new regulatory approach to consumer protection
The FCA’s transformation to becoming an assertive, front footed regulator has been accelerated by three recent developments, all of which prioritise the protection of consumers.
You may also be interested in:
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
Share insightLinkedIn X Facebook Email to a friend Print