The Financial Reporting Council (FRC) will be scrapped and replaced with a new beefed-up watchdog following a review into the audit sector by Sir John Kingman, the government announced today.
The new regulator will have stronger statutory powers, including the ability to make direct changes to accounts and powers to require rapid explanations from companies and publish reports about their conduct in the event of a corporate failure.
A raft of probes into the audit sector were launched after scandals such as the collapse of outsourcer Carillion last year and the failure of department store BHS in 2016.
Both businesses went bust despite receiving a clean bill of health from auditors.
The Department for Business, Energy & Industrial Strategy (Beis) launched a consultation today on the new regulator which will be called the the Audit, Reporting and Governance Authority.
In the interim period until new the regulator is in place, Beis said it will work with the FRC to take forward 48 of the Kingman review’s recommendations to address shortcomings such as a lack of transparency and weak enforcement powers.
The new watchdog will regulate the biggest audit firms directly, rather than those powers being delegated and it will have a new board and leadership to “change the culture and rebuild respect of those it regulates,” Beis said.
Business secretary Greg Clark said: “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.”
FRC chair Sir Win Bischoff 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.”
Bischoff and FRC deputy chair Gay Huey Evans are both set to stand down from the FRC with replacements being sought for both roles.
Peter Swabey of governance institute ICSA welcomed the plans, saying: “Building on the strengths of the existing regulator by giving it more teeth and more power can only be a good thing.”
However, professor Prem Sikka of the University of Essex, author of Labour’s report on the audit sector, said the Kingman review did not address the bigger picture.
“He is simply rearranging the deckchairs,” he said, arguing that bodies such as the Institute of Chartered Accountants in England and Wales which have a regulatory function should have been included in the review.
“You need a whole new broom, I don’t think what the government is doing is really good enough,” he said.