The Financial Reporting Council (FRC) has published its final reforms to the Audit Enforcement Procedure (AEP), which came into force on 1 July 2026. The changes represent a significant shift in enforcement philosophy towards a more graduated, transparent and proportionate approach.

New routes to resolution

The previous AEP offered a binary choice where the FRC considered that action needed to be taken: confidential constructive engagement or a full formal investigation.

The revised framework offers some new routes to resolution, allowing for greater flexibility in how audit issues are addressed. Critically, two of the routes carry no sanction risk, whilst the accelerated procedure (AP) and formal investigation can result in sanctions. Understanding the different routes available from the outset of an investigation is essential; here are five areas to consider:

1. Constructive engagement (CE)
Available under the previous AEP, CE is a confidential process for resolving less serious issues collaboratively. No sanctions can be imposed under CE; instead remedial actions will be agreed.

2. Published constructive engagement (PCE)
The FRC will work collaboratively with a firm to agree and oversee remedial actions, with certain information made public. No sanctions apply and there is a presumption against commencement announcements, reducing immediate reputational exposure. For mid-tier firms in particular, this offers a meaningful way to resolve matters whilst demonstrating regulatory responsiveness.

3. The accelerated procedure (AP)
Designed for cases where firms accept failings on the basis of existing evidence, allowing the FRC to bypass a full investigation. The final rules are more generous than originally proposed: firms engaging cooperatively with the AP can now access the same enhanced sanction discounts as those going through the Early Admissions Process. A presumption against commencement announcements also applies.

4. The early admissions process (EAP)
The EAP falls within the formal investigation framework but enables firms to conduct their own review of a matter, agreed in scope and terms with the FRC, and admit any identified breaches in return for an enhanced sanction discount. Firms with robust internal review and root cause analysis capabilities are well placed to benefit from this route. The financial savings from an enhanced discount can be substantial, and the process offers a degree of agency that a conventional investigation does not.

5. Formal investigation
The formal investigation remains the most demanding route, in terms of both time and cost. The process involves extensive evidence gathering, written representations and, where matters cannot be settled, referral to a public tribunal. The FRC’s costs in complex or contested cases can be substantial, and these could fall on the respondent to pay.

Key procedural changes

Auditors should also consider these procedural changes:

• The Designated Officer. The Case Examiner role is replaced by a more senior Designated Officer, anticipated in most cases to be the FRC's Executive Director of Supervision. The Designated Officer will conduct initial assessment and will recommend the appropriate route to resolution. This should deliver more consistent and better-informed early decisions.
• A clearer public interest test. The new AEP clarifies the two-stage test that the Conduct Committee must apply: first, whether there are reasonable grounds to suspect a breach; and second, whether it is in the public interest to proceed. Published guidance on public interest factors will give firms and their advisers greater visibility of the considerations informing enforcement decisions.

What firms should do now?

Firms should familiarise themselves with the new routes to resolution and assess their internal review and root cause analysis capabilities. Robust internal processes will be a practical advantage should a regulatory matter arise, particularly for those wishing to access the enhanced sanction discounts available under the EAP and AP.

Julie Matheson, Partner, Kingsley Napley

Jenny Higgins, Legal Director, Kingsley Napley