Directors looking to ensure the highest standard of corporate governance are sure to take an interest in the recent publication of the Auditor Regulatory Sanctions Procedure and Guidance by the Financial Reporting Council (FRC).

The corporate governance guidance was the subject of a consultation earlier in 2013, and came into effect in November 2013 for any audit firm that is registered with the ICAEW and subject to the FRC’s Audit Quality Review’s independent monitoring.

Prior to the new Auditor Regulatory Sanctions Procedure, amendments had been made to the Companies Act 2006, requiring Recognised Supervisory Bodies (RSB) to enable sanctions to be determined by the body performing independent monitoring function. As part of the FRC’s initiatives to ensure good governance, statutory auditors can be subject to sanctions in the event of their failure to comply with the rules relating to statutory audits.

The FRC’s independence is further affirmed by the new procedure, which allows sanctions to be determined or undertakings suggested by the regulator after an inspection, where appropriate. Sanctions would be determined through the FRC’s Monitoring Committee or an Independent Sanctions Tribunal, as an alternative to the referral of each matter to the RSB to decide whether action should be taken.

Stephen Haddrill, FRC Chief Executive said that there was strength in the UK’s present quality of audits for ensuring good corporate governance.

But he added: “However sometimes our inspections reveal shortcomings that we expect the firms to address. The new procedure enables the FRC to require such work to be done and if appropriate a penalty to be applied without reference to the professional bodies. This reinforces our independence and enhances the impact of our audit monitoring activity.”

He said that companies were encouraged to conduct high quality audits backed up by the threat of sanctions for poor quality work, and that trust in the audit profession would be ultimately enhanced as a result. He said that a clear approach for Committees and Tribunals had been set out in the new guidance, ensuring transparency and consistently whenever sanctions are administered.