UK accounting regulator to be replaced
The Business Secretary Greg Clark has announced that a new enhanced regulator will be established to transform the audit and accounting sector in response to the comprehensive Independent Review led by Sir John Kingman.
As per the Review’s recommendations, the Financial Reporting Council (FRC) will be replaced with a new regulator called the Audit, Reporting and Governance Authority (ARGA) that will be accountable to Parliament.
The new regulator will have a new mandate, new leadership and stronger statutory powers and the Department of Business, Energy and Industrial Strategy (BEIS) has published a consultation on implementing these reforms reflecting their desire to move swiftly to overhaul the sector. In one of the biggest changes, the new regulator will have the power to investigate company directors. Currently, the FRC can only investigate company directors if they are also registered with an accounting body.
In the interim period, until the new regulator is in place, the government will be working with the FRC taking forward 48 of the Review’s recommendations to address the shortcomings identified in the Kingman Review such as lack of transparency and to reinforce work to enhance enforcement activity.
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 advisors 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.
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.
Bruce Cartwright CA, Chief Executive of ICAS, said:
The speed at which BEIS is implementing Sir John Kingman’s recommendations is reflective of the pressing need to address public trust and confidence in business and the auditing profession.
However, this is only part of what is required in order to address this lack of trust. What is key is the consideration of the purpose and scope of audit and whether it remains fit for purpose. This is where the work of the Brydon review will be crucial.
The consultation will run for 12 weeks and will close on 11 June 2019.