FRC's 'Naming and Shaming' in Audit Investigations: A Heated Debate

It is thought that challenger audit firms are particularly in favour of change, which also has support from some in Westminster. Noah Law, the Labour MP and chairman of the all-party parliamentary group for sustainable finance, said that naming firms before investigations were concluded could “cause undue reputational damage to businesses while providing relatively little value, in terms of meaningful transparency, to the public”. However, not all in the industry think the FRC needs to amend its publication policy. At least one of the Big Four accountancy firms is known to be supportive of the present regime. There have been a series of accounting scandals over recent years that have heaped scrutiny on the sector including BHS, Carillion and Patisserie Valerie. The FRC typically discloses the audit firm, the audited company and the accounting period when announcing an investigation. This can easily lead to the senior audit partner, who ultimately signs off on the statements, being identified. A spokesman for the FRC said: “Communication of the opening of investigations can be an important part of maintaining public and investor confidence in the integrity of the audit system, but a decision to publish is considered on a case-by-case basis and informed by the public interest.” He added that the regulator “welcomes and will consider all of the views” received during the consultation. Although the FRC’s consultation did not expressly consult on its publication policy, in its submission the ACCA (Association of Chartered Certified Accountants), the professional body, said that identifying the audited entity as well as any relevant individual should not be the default at the opening of an investigation. The ACCA has seen signs that the FRC, which already has such discretionary powers, has been naming fewer audited entities at earlier stages of public investigations, and instead just naming the audit firm. Maggie McGhee, executive director of strategy and governance at the ACCA, said there was anecdotal evidence that naming and shaming could act as a disincentive to enter the audit profession “because of the potential personal risks”. • Patrick Hosking: Good governance may be boring, but it ensures long-term returns One senior auditor at a Big Four firm, speaking confidentially, said: “The view of my firm and me personally is the FRC have got a bloody important job to do, and that is to give confidence in the market and demonstrate that they are the safeguards and guardians of trust. I do think that they should have the ability and apply judgment to let the public know when there is a matter that they are investigating.” Other stakeholders, including investors and board directors, have also called on the FRC to continue disclosing the full details of any new investigations. Mark Northway, director of ShareSoc, which represents individual shareholders, said: “Audit investigations can take many years to complete. The existence of an investigation under way is hugely relevant to all users of published accounts, and to deny that information to the public until it is no longer relevant is to undermine confidence in the financial reporting process.”