What is Constructive Engagement?
Constructive Engagement (CE) is an alternative pathway for resolving lower-level audit conduct matters. It sits outside ICAEW’s formal disciplinary process and focuses on helping firms understand what went wrong, address root causes and make changes that improve audit quality.
Which audit conduct matters may be suitable for Constructive Engagement?
A matter may be suitable for Constructive Engagement where all of the following apply.
- There is no significant risk of harm to the public, investors or any other third party.
- There is no perceived damage to the reputation of, or trust in, the profession.
- The subject has not had any previous relevant conduct matter resolved by CE in the past two years.
- The subject has no relevant active conditions or restrictions imposed by the ICAEW Audit Registration Committee.
- The subject accepts the allegations and is willing to remediate and pay costs.
These criteria indicate the types of cases that may be suitable for Constructive Engagement. ICAEW will consider each matter on its individual facts and circumstances before deciding whether the pathway is appropriate.
How will Constructive Engagement work in practice?
Where ICAEW identifies that an audit conduct matter may be suitable for Constructive Engagement, we will offer the firm the opportunity to use the CE pathway instead of proceeding through the usual disciplinary route.
The firm will need to provide a written root cause analysis explaining why the audit issues occurred, together with an action plan to address those root causes. The analysis and action plan will be considered by the Audit Registration Committee (ARC), ICAEW’s independent regulatory committee responsible for approving and overseeing ICAEW-registered auditors.
If the ARC approves the action plan, the firm will normally be monitored to assess whether the agreed improvements have been implemented within the agreed timeframe and are effective. If the ARC does not approve the action plan, the matter will return to the usual disciplinary route.
Will Constructive Engagement be available in all cases?
No. Constructive Engagement will only be available where ICAEW considers the matter suitable. It is intended for lower-level audit conduct matters where there is no significant risk of harm, no perceived damage to trust in the profession, and the firm accepts the issues, is willing to remediate and agrees to pay costs.
Can a firm ask for Constructive Engagement?
No. ICAEW will determine whether the pathway is appropriate after considering the facts of the case and the relevant regulatory requirements, and will contact the firm with this option where relevant.
Does Constructive Engagement mean no further action will be taken?
No. Constructive Engagement is not a ‘no action’ outcome. Firms must carry out a root cause analysis, agree an action plan and implement improvements. ICAEW may monitor the firm’s progress, and the matter can return to the disciplinary route if the action plan is not approved or the agreed improvements are not delivered.
What happens if a firm does not complete the agreed actions?
If a firm does not complete the agreed actions, or if the actions do not adequately address the root causes identified, ICAEW may take further action. This could include returning the matter to the usual disciplinary process.
Do other regulators use Constructive Engagement?
Yes. The Financial Reporting Council (FRC), which is responsible for conduct investigations relating to the audits of Public Interest Entities (PIEs), uses a similar process for appropriate cases. For more details on the FRC’s scope and approach to enforcement work, visit their enforcement web page.
Will Constructive Engagement outcomes be published?
No. The matter will not be published if it is resolved via Constructive Engagement.