Audit regime in the UK to be transformed with new regulator
The Financial Reporting Council (FRC) will be replaced with a new regulator called the Audit, Reporting and Governance Authority, the government said.
The new regulator, recommended by the comprehensive independent review led by Sir John Kingman, will have a new mandate, new leadership and stronger powers set down in law.
"The government welcomes and shares the review’s vision for a new regulator with a new mandate, new leadership and stronger statutory powers and has published a consultation on implementing these reforms," Secretary of State for Business, Energy and Industrial Strategy Greg Clark said in a government statement.
He assured that the government intended to move swiftly to implement these reforms and overhaul the sector.
"In the interim period until the new regulator is in place, we will be working with the FRC taking forward 48 of the review’s recommendations to address the shortcomings identified in the review, such as lack of transparency and to reinforce work to enhance enforcement activity," Mr Clark noted.
Specifically, 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); and
- have a new, diverse board and strong leadership to change the culture and rebuild respect of those it regulates.
There will also be greater sanctions available in cases of corporate failure, including new powers to require rapid explanations from companies and in the most serious cases publish a report about the company’s conduct and management.
"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," Mr Clark added.
"I am most grateful to Sir John Kingman for his work in this area. Taken together with the CMA’s market study and Sir Donald Brydon’s review of audit quality and effectiveness, they will enable us to deliver a major set of reforms on the regulation of company audit, accounting and reporting."
He explained that the government sees a tough and robust regulator, and an audit sector with the highest standards, as a key part of attracting investors, jobs and growth to the UK.
"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," Sir John Kingman, chairman of the independent review of the FRC, said.
According to the government, the establishment of new leadership at the top of the FRC, which will transition into the Audit, Reporting and Governance Authority, will also begin, with the recruitment for the chair and deputy chair opening shortly.