The Institute of Chartered Accountants in England and Wales (ICAEW) is once again facing a barrage of criticism after it was
confirmed this week that KPMG’s £14.4m Carillion audit fine will be paid
to ICAEW because the regulatory action fell within the accountancy
scheme, which was introduced in 2004.
As KPMG tries to repair its damaged reputation, politicians and
ICAEW’s own members are questioning why the professional body is
retaining all of the fines.
Accountancy scheme
In recent years, ICAEW has received KPMG’s £13m fine from the Silentnight insolvency and Deloitte’s record £15m fine over the audit of ill-fated software firm Autonomy.
With costs included, and the addition of the recent Carillion fine, the combined total from these fines exceeds £50m – and if you were to look further back, ICAEW has gathered £123.4m since 2004.
However, ICAEW can lay claim to the fines because, under the funding
arrangements, professional bodies pick up the cost of investigations by
the Financial Reporting Council (FRC) in advance.
In return professional bodies get the money from any fines, rather
than that pot of money being used as compensation. Alternatively,
though, when a case is brought to tribunal by the regulator and there
isn’t a fine, the professional body bears the cost instead. ICAEW also
points out that even where fines have been imposed, some cost orders do
not fully reimbuse professional bodies for the whole costs of the
investigation.
The institute also stresses that the money received from fines is not
used to offset ICAEW’s operational expenditure but is “allocated to our
strategic reserves and it supports our wider commitment to serve the
public interest, as required by the terms of our Royal Charter”.
While ICAEW has retained the costs, as it was legally entitled to,
the move has roused similar criticism that was aimed at the institute
when it received the KPMG’s Silentnight £13m fine,
rather than the pension holders who were set to lose around 30% of
their pot due to the mattress company falling into insolvency. That
incident prompted The Times’s columnist Patrick Hosking to fume, “the more dishonesty and fraud discovered in the profession, the more profit the institute stands to make”.
Criticism
The pressure on ICAEW comes as KPMG agreed to pay the fine, reduced from £20m, after a five-week trial found five former KPMG auditors guilty of forging documents.
KPMG has previously been accused of failing to maintain professional
independence as the auditor of Carillion and missing multiple “red
flags”. Creditors claim to have lost billions of pounds in dividends, advisory fees and losses as it continued to trade.
But the fine going to ICAEW has only reignited the condemnation
previously heard during the Silentnight episode. Former pensions
minister Baroness Altmann has added her voice to the calls for the money to go to the creditors and not ICAEW, saying: “Something has gone wrong here.”
Meanwhile, ICAEW members have also expressed concern over how the
perception of the institute keeping the proceeds will tarnish the brand.
Chartered accountant and ICAEW critic Ken Frost was particularly
scathing. “I think it is shameful that my professional body seeks to
profit from the wrongdoing of member firms,” said Frost. “It is, of
course, quite correct that the ICAEW issued the fine. However, it is
shameful that they have decided to ‘trouser it’ like a spiv City trader
from the 80s.
“Additionally, it beggars belief that the ICAEW thinks that this won’t damage their brand!”
A different approach
The accountancy scheme is set to wind down soon as part of a
government reform and the funding arrangements are also expected to
switch to the government.
Despite the removal of the accountancy scheme, professional bodies
must continue to fund investigations of all new complaints brought by
the FRC under the audit enforcement procedure.
An ICAEW spokesperson said that the professional body would welcome
the rationalisation of the “different schemes which now exist to pay for
this aspect of the FRC’s regulatory work.”
They continued: “We do not believe that any of the professional
bodies would object to being removed entirely from the funding process,
with all fines in future going to HM Treasury. We would be happy to
discuss this with BEIS [the Department for Business, Energy and
Industrial Strategy], the FRC or – when it is eventually established –
ARGA.”
I have been asked by the ICAEW to point out that the ICAEW did not issue the
fine. The fine was issued by an independent tribunal of the FRC and the
size of any fine was entirely their decision.
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