Business secretary Greg Clark has confirmed that the UK’s accounting watchdog is to be scrapped after a highly critical report.
The Financial Reporting Council is to be replaced by a stronger and more coherent body that will, it is hoped, bring the Big Four auditing groups to heel and prevent further scandals like Carillion.
Clark said on Monday that he would follow the recommendations made by former L&G chief and top civil servant John Kingman in a report published at the end of last year.
Sanctions
Kingman was drafted in amid a growing feeling that the FRC was a spent force that was too slow to look at misconduct and whose eventual sanctions were too soft.
Win Bischoff, FRC chairman, said: “In line with the consultation document, we believe the speedy implementation of the recommendations can help increase public confidence in audit in the UK. We will move forward to implement the agreed proposals as soon as possible.”
Audit controversies at big companies including Carillion, BHS and Patisserie Valerie have raised worries about the FRC.
New audit regulator
Kingman added: “As I set out in my review, we need a new audit regulator with a clear and precise sense of purpose and I am pleased that the government shares that vision.
“I look forward to continuing to work closely with the Secretary of State as the Audit, Reporting and Governance Authority is established.
Direct changes
According to officials, the new regulator will for the first time:
- Be a statutory body with powers such as those to make direct changes to accounts rather than apply to court to do so, and more comprehensive, visible reviews for greater transparency.
- Have strategic direction and duties to protect the interests of customers and the public by setting high standards of statutory audit, corporate reporting and corporate governance, and by holding companies and professional advisers to account.
- Regulate the biggest audit firms directly (rather than those being delegated)
- Have a new, diverse board and strong leadership to change the culture and rebuild respect of those it regulates
Clark added: “This new body will build on our status as a great place to do business and will form an important part of strengthened public trust in businesses and the regulations that govern them.”
Interesting to see how this one works out…