Banking StandardsLetter from Vernon Soare, Executive Director, Professional Standards, Institute of Chartered Accountants in England and Wales

Following my evidence in January, I promised to come back to your committee on two points raised during the session by Lord McFall and Lord Lawson.

Disciplinary Action Against the Big 4 Firms +2

Lord Lawson requested information on what disciplinary action we have taken against the top six UK accounting firms (PwC, Deloitte, Ernst & Young, KPMG, BOO and Grant Thornton) and their senior partners. Between 2008 and 2012, we processed 22 cases relating to the top six accountancy firms:

In five cases, ICAEW has taken disciplinary action and/or levied regulatory penalties against a Big Four firm, and six cases against BOO and Grant Thornton. These ranged from a caution and costs, to a severe reprimand and fines exceeding £40,000.

In ten further cases deemed to be of public interest, we referred disciplinary cases relating to the top six firms to the Financial Reporting Council (FRC). The FRC took action in five of those cases. The FRC can independently and directly call in cases without our intervention when they deem them to be in the public interest. These cases are not recorded in our figures.

We have taken action against at least seven individual partners at the top six firms.

Provision of Non-Audit Services

Lord McFall asked about which non-audit services are prohibited under our code of ethics. This code mandates auditors to comply with APB Ethical Standard 5. It gives examples of safeguards that can, in some circumstances, eliminate the threat or reduce it to an acceptable level. In circumstances where this is not possible, either the non-audit service should not be undertaken or the auditor should cease the audit of the company in question. A copy of APB Ethical Standard 5 is attached as Appendix I.1 The fee income from non-audit work to audit clients for the Big Four accountancy firms fell 6% from 2005–2010 and accounts for only 15% of total free income, according to the latest information from the FRC.

18 March 2013