FRC publishes reforms to Audit Enforcement Procedure

13 July 2026

Last updated: 13 July 2026

James Barbour CA
Director - Policy Leadership, ICAS

Recent revisions by the Financial Reporting Council (FRC) to its Audit Enforcement Procedure (AEP) took effect from 1 July 2026. The updated framework marks a significant step in the FRC’s move towards a more integrated regulatory approach, bringing its supervisory, investigatory and enforcement activity closer together.

What the revised AEP covers

The AEP’s scope remains unchanged, meaning the FRC will continue to investigate matters relating to the audits of:

Public Interest Entities (PIEs), being listed entities, credit institutions and insurance undertakings.
AIM-listed companies with a market capitalisation in excess of €200m Lloyds Syndicates.

Other audit-related investigations have been delegated to the Recognised Supervisory Bodies (RSBs), such as ICAS, but the FRC can reclaim an investigation from an RSB if it chooses to do so.

Why the FRC is changing its approach

The FRC published its revised AEP alongside accompanying policies on Wednesday 17 June following a period of consultation in the autumn of 2025. The changes to the AEP form part of a broader move by the FRC towards what is planned to be a more integrated, end-to-end regulatory model.

This is intended to bring supervisory, investigatory and enforcement activity closer together. This will help the FRC identify risks earlier, address issues more quickly and share lessons across the market more effectively.

The FRC says the reforms are based on a clear principle: enforcement should serve the public interest. To do this, it needs a modern framework that supports wider improvements and learning across the system. It also needs to respond firmly to serious or significant failures.

The revised framework is intended to allow a proportionate response across different types of cases. Formal investigation will remain an important option where serious or significant failings are identified.

A wider range of enforcement options

The updated framework moves away from a choice between formal investigation and private constructive engagement. It gives the FRC a wider range of possible regulatory responses, including:

Published Constructive Engagement (PCE), which combines remediation with public transparency and is intended to support improvement and shared learning across the audit market.
Accelerated Procedure (AP), intended to facilitate faster resolution in cases where sufficient evidence is already available.
Early Admissions Process (EAP), which is intended to encourage firms to cooperate with the FRC earlier in admitting and identifying breaches of relevant requirements.

This increased flexibility is intended to help the FRC to act quickly and in a more targeted way when serious issues arise. It aims to handle cases consistently based on their impact, while maintaining the ability to pursue full and robust investigation and enforcement action where appropriate.

How the new Designated Officer role will work

As part of the update to the AEP, the FRC will introduce the role of a Designated Officer, who will:

Have oversight of the team that undertakes case assessment enquiries and receive support in the preparation of the material to be submitted to the Conduct Committee.
Be responsible for the determinations required by Rule 4 and Rule 5 of the AEP, including the recommended route of resolution. Where necessary (for example, in the absence of the Designated Officer), decisions under Rule 4 and Rule 5 will be delegated to another Executive Director of the FRC (but not to Executive Counsel, who conducts the case if the Conduct Committee opens an investigation or directs the use of the new Accelerated Procedure (AP)).

A new test for deciding the route to resolution

The AEP also changes the wording of the test used to decide the appropriate route to resolution. This now includes an evidential test: whether there are reasonable grounds to suspect a breach of a relevant requirement. It also requires explicit consideration of the public interest. The FRC is also publishing policy and guidance documents to support the revised AEP. These will include more detail on the public interest factors the Conduct Committee will consider.

Published constructive engagement: What changes

A new route to resolution is introduced where the FRC’s Supervision Division would work with an audit firm in agreeing and overseeing the implementation of actions to address any issue(s) raised, with certain information relating to PCE being published. This route would require the consent of the statutory audit firm (and, where relevant, the statutory auditor) involved.

The FRC notes that Constructive Engagement (CE) should continue to be available for lower-level issues and that PCE shouldn’t displace the application of CE. The FRC will introduce a presumption against making a standalone announcement (e.g. press notice) regarding the commencement of a case in respect of which PCE is being conducted, while retaining discretion for the Conduct Committee to issue such a publication if it deems this is appropriate.

The FRC will list the start of all PCE cases on its website, as proposed in the AEP Consultation. It also expects to publish a separate announcement when a PCE case ends, unless the Conduct Committee decides this would not be in the public interest. The FRC will provide guidance on when costs should be paid, including any cap on those costs. The guidance also makes clear that the Designated Officer can waive the requirement to pay the FRC’s costs where they think this is appropriate. The FRC will only seek to recover costs actually incurred, without any profit element.

Early Admissions Process: How it will operate

The FRC will introduce a new form of investigation where firms can carry out their own review of a matter, if the FRC agrees the scope and terms. Under the EAP, firms must agree the review terms with the FRC’s Executive Counsel, admit any breaches they identify and, where the respondent is a statutory audit firm, have the review confirmed by an independent senior partner (where the Respondent is a Statutory Audit Firm).

Executive Counsel will also review the EAP Factual Account produced and determine whether it’s sufficiently accurate and complete for the purpose of entering settlement discussions. Executive Counsel will retain the option to proceed with an investigation, where the EAP Factual Account isn’t satisfactory. The FRC says the EAP is intended only for cases where respondents are willing to admit breaches of relevant requirements. This is why the route is called the Early Admissions Process.

The FRC is also providing guidance on how the EAP should operate. This includes the factors Executive Counsel may consider when deciding whether the EAP is appropriate.

FRC approach to auditor and firm accountability

The FRC also noted its current approach takes a balanced view of the shared regulatory responsibilities of statutory auditors and statutory audit firms. This reflects the clear responsibilities each has under UK law and international auditing standards.

Although the FRC doesn’t intend to change its approach at this stage, it will continue to engage with interested parties and other audit regulators through IFIAR (International Forum of Independent Regulators). This will help the FRC gather views and evidence on the accountability of individuals.