Problems and politics of regulatory fragmentation: the case of the Financial Reporting Review Panel and the Institute of Chartered Accountants in England and Wales

The UK regime for financial reporting and auditing was radically altered in 1990 and 1991 by two separate developments. When removing sole responsibility for setting accounting standards from the accounting profession, the opportunity was taken to establish a monitoring body, the Financial Reporting Review Panel (FRRP), to oversee compliance with company law and accounting standards, and with powers to apply to the courts for rectification. In addition, a new regulatory system for auditors was set up. This paper considers the problems arising between the regulatory responsibilities of the Institute of Chartered Accountants in England and Wales (ICAEW) and FRRP. In 50 cases (up to September 1999) FRRP found defects in accounts, 49 of which were audited by firms regulated by ICAEW, but no disciplinary action was taken by ICAEW until 1999. The way in which the new audit regulations were grafted onto the existing ICAEW disciplinary regime is considered, and the anomalies arising from that explored. The cases resulting in ICAEW's disciplinary action are compared with the other cases together with some evidence from finance directors and audit partners with experience of dealing both with FRRP and an ICAEW disciplinary investigation. The relevant theories relating to professional bodies and regulation are also reviewed. Finally, the authors review the problems identified in this study and make suggestions as to how they may be addressed.