The Financial Reporting Council (FRC) is the independent disciplinary body for accountants and accountancy firms. It operates a disciplinary scheme for the accountancy profession which is independent of the professional bodies.
These Frequently Asked Questions aim to assist accountants and accountancy firms who are the subject of or otherwise involved in an investigation under the FRC’s Accountancy Scheme.
It is essential to seek tailored advice from a lawyer experienced in FRC proceedings at the earliest opportunity to ensure the best outcome.
Who can be investigated under the FRC Accountancy Scheme?
Members and Member Firms of the following professional bodies can be investigated:
- Institute of Chartered Accountants in England and Wales (ICAEW);
- Chartered Institute of Management Accountants (CIMA);
- Chartered Institute of Public Finance and Accountancy (CIPFA);
- Institute of Chartered Accountants in Ireland (ICAI);
- Association of Chartered Certified Accountants (ACCA); and
- Institute of Chartered Accountants of Scotland (ICAS).
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Who can make a complaint?
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What happens once a complaint has been received?
The FRC’s Board or its Conduct Committee will decide, within two months of receiving the complaint, whether the criteria for commencing an FRC investigation are met, namely:
- whether the case raises or appears to raise important issues affecting the public interest in the UK; and
- there are reasonable grounds to suspect that there may have been misconduct.
When considering whether the matter raises public interest issues, the following factors are taken into account:
- the impact on a significant number of people in the UK;
- the loss or potential loss of significant sums of money; and
- whether the conduct undermines confidence in financial reporting or corporate governance.
Under the Accountancy Scheme, ‘misconduct’ is defined as any act or omission made in the course of a Member or Member Firm’s professional activities which falls “significantly short” of the standards reasonably to be expected of a Member or Member Firm, or has brought or is likely to bring discredit to the Member or Member Firm, or to the accountancy profession in general.
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What happens once an investigation begins?
If the criteria are met, the Board or Conduct Committee will refer the case to the Executive Counsel and Enforcement Division to investigate. The Executive Counsel’s investigation will be conducted by an in-house team of lawyers and forensic accountants, usually culminating in an Investigation Report. The Executive Counsel may also instruct an external expert to provide an expert opinion and engage external Counsel to advise on the merits of the case.
During the course of the FRC investigation, you may be interviewed and asked to provide documentation. Prior to the interview, you should be provided with a copy of any documentation the FRC intends to rely on at the interview.
The interview will normally be recorded and a transcript prepared. You may be asked to provide further information, or attend further interviews.
What happens at the conclusion of the investigation?
At the conclusion of the investigation, the Executive Counsel will decide whether there is (a) a realistic prospect of an adverse finding by a Disciplinary Tribunal, and (b) whether a hearing is desirable in the public interest.
If the answer is ‘yes’, then a Proposed Formal Complaint will be served on you. This will set out the charges that the FRC intends to bring against you, including a summary of the evidence obtained in support of each charge. You will not normally be provided with the documents obtained during the investigation.
You will have eight weeks to make any representations based on the Proposed Formal Complaint. The representations are a crucial point at which you can put forward your response to the allegations.
Executive Counsel will review the representations and then decide whether or not to proceed with delivering the Proposed Formal Complaint to the Conduct Committee. If so, Executive Counsel will proceed to serving a Formal Complaint.
What happens once I have been served with a formal complaint?
The Formal Complaint will set out the charges that will be considered by the Disciplinary Tribunal. This may differ from the Proposed Formal Complaint, as the Executive Counsel may have withdrawn or amended the charges based on your representations or any settlement negotiations (see below).
The matter will then proceed to a Disciplinary Tribunal hearing. However, you can continue to engage in settlement negotiations during this period. Prior to the hearing you will be able to serve any evidence you wish to rely upon at the hearing.
Do I have to cooperate with an FRC investigation?
The FRC requires that all members, including former members, must at all times fully co-operate with the investigation. Member firms, including former and successor member firms, must use their best endeavours to ensure that every employee cooperates fully.
The FRC also has the power to require you to:
- provide information and any relevant explanations;
- permit them to inspect and take copies of documents/information; and
- provide copies of documents and information at your own expense (to a reasonable extent).
Failing to cooperate is not likely to be helpful to your position. Not only would this likely be a breach of your professional obligations, but it is possible that any decision-maker in your case might decide to draw an adverse inference from your silence. This means they can infer from your silence that you have no reasonable explanation for the alleged conduct, or no explanation that would stand up to proper scrutiny under investigation.
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Will anything be made public at this stage?
The Conduct Committee will decide whether the fact of an investigation and the outcome of the investigation should be published.
It will only decide to publish the fact of its decision to commence an investigation if it considers that such publication is necessary in all the circumstances, and any potential prejudice to the subject of an investigation is outweighed by the factors in favour of publication.
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Is it possible to agree a settlement with the FRC?
Yes, at any stage after the commencement of an investigation, but prior to any final determination of the Formal Complaint, it is possible for the Executive Counsel to commence settlement discussions in respect of part or the whole of any alleged misconduct. This is at the sole discretion of the Executive Counsel, having regard to the public interest.
The FRC offers discounts for settlement of a case, depending on the stage at which the matter is settled. For example, if a case is settled up to and including 28 days following deliver of the Proposed Formal Complaint, there may be a reduction of between 20% and 35% in relation to any fine imposed. Early settlement may also help to limit any costs award, therefore there can be significant financial advantages in engaging in settlement negotiations.
There is a presumption in favour of publication of approved Settlement Agreements. There may also be an accompanying press announcement to summarise the Settlement Agreement and any sanctions and costs orders imposed.
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Can an interim order be imposed?
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What are the potential outcomes of an FRC Disciplinary Tribunal hearing?
The Disciplinary Tribunal will either dismiss the Formal Complaint or make an adverse finding in respect of part or all of the alleged misconduct.
Where an adverse finding has been made against a Member or a Member Firm, a Disciplinary Tribunal may impose a sanction.
For Members and Member Firms the following sanctions may be imposed:
- reprimand;
- severe reprimand;
- conditions;
- fine of an unlimited amount specified by the Tribunal;
- waiver or repayment of client fees;
- order that a Member/Member Firm is not eligible for a practising certificate/registration/authorisation/licence for a specified period of time;
- order that a Member/Member Firm’s practising certificate/ registration/ authorisation/ licence be withdrawn or that it not be reinstated for a specified period of time; or
- exclusion as a Member for a recommended period of time (not applicable to Member Firms).
The Tribunal can also decide not to impose a sanction or may simply order the payment of costs, if it considers this to be appropriate in all the circumstances.
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What is a costs award?
In addition to any financial penalty imposed, the FRC can seek a contribution to the costs of its investigation. Costs awards in FRC cases can be significant. Recent awards have been over £1 million where the matter has been determined by a Disciplinary Tribunal. It may therefore be in your interests to settle early before the costs escalate.
If the Tribunal dismisses the Formal Complaint, then it is open to you to ask for a costs award to be made in your favour. However, this is limited to legal costs reasonably incurred subsequent to the Formal Complaint being served. Such an order is rare. The Tribunal will also consider if the order is necessary given the FRC’s public interest responsibility to investigate complaints.
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Can I appeal the decision?
Yes, it is possible to appeal a decision of the Disciplinary Tribunal and, if permitted, have the Appeal Tribunal re-hear any of the witnesses and/or hear fresh evidence.
An appeal can only be made on the following grounds:
- the decision of the Disciplinary Tribunal was perverse or wrong in law; and/or
- there was injustice because of a serious procedural or other irregularity in the Disciplinary Tribunal proceedings; and/or
- significant and relevant new evidence has come to light which was not previously available and could not have become available on the making of reasonable inquiry; and/or
- the sanction was manifestly unreasonable.
The appeal must be made in writing and within 28 days of the date on which you are notified of the adverse finding.
