UK regulator shows little sympathy for ‘Ferrari-driving’ auditors

Auditors who think robust regulation of their sector is disproportionate deserve “the world’s smallest violin,” the head of the UK accounting watchdog has said.

Sir Jon Thompson, chief executive of the Financial Reporting Council, told a private industry meeting earlier this year that close scrutiny was appropriate for auditors who earn hundreds of thousands of pounds a year and “can buy a Ferrari”, people who were in the room or were later briefed on his comments told the Financial Times.

Thompson said that if auditors did not want to face such pressure, they should do a better job, these people added. Attendees were “taken aback” by Thompson’s comments, said one person present.

His comments during the meeting at a City law firm in January are the latest salvo in an ongoing clash between top accountants and the FRC over its tough approach, including its public naming of individuals whose work is under investigation. This has prompted concerns in the profession that intense scrutiny is harming auditors’ health.

The FRC has been beefed up in recent years, imposing record fines on accounting firms after criticism of weak regulation after scandals at BHS, Carillion and Patisserie Valerie.

Its hardened approach, including rigorous annual inspections and public naming of auditors under investigation, has prompted firms to improve but has also sparked concerns that the auditing profession is becoming unattractive.

Meanwhile, FRC deputy chief executive Sarah Rapson was asked by a senior PwC partner at a separate meeting last week whether the regulator was reviewing its approach, in light of reports that a headteacher had taken her own life after an inspection by education regulator Ofsted, attendees told the FT.

“I’ve seen people suffer genuine health problems,” said one audit partner, who felt that Rapson “didn’t really answer” the question. FRC inspections, whose results are published on an aggregate basis without identifying individual auditors, have become “an emotional drain”, said an audit partner at another large firm.

The UK heads of two Big Four firms reported that some audit partners were retiring early, or refusing to work on large audits because of the stress and reputational risk associated with regulation.

But a senior accountant from a smaller firm said the question to Rapson that compared auditors to headteachers was “self-serving” on behalf of the Big Four firms, which have borne the brunt of increased FRC scrutiny. The Ofsted comparison was “quite a clever way of trying to get the [regulator’s] language toned down”, the accountant said, adding that audit partners were paid far more than headteachers.

Average partner pay at Deloitte and PwC was more than £1mn last year, helped partly by rising audit fees.

In a statement, Thompson said: “When deciding sanctions, and whether they will be made public, the FRC does take into account representations about an individual’s personal circumstances, including their mental health.”

“The FRC has always applied a proportionate approach when discharging its duties and statutory responsibilities as a regulator acting in the public interest and has taken action to not publish when there are significant concerns about the impact on an individual,” he added.

Thompson’s mention of a Ferrari was a mistaken reference to the Porsche driven by Peter Meehan, the former KPMG partner who audited Carillion and was found to have misled regulators, said people familiar with his comments. Meehan had argued that he “could not have been involved” in preparing forged documents because he was out of the office at the time to deliver a car.