The Business Secretary Greg Clark today (11 March) announced a “new enhanced” regulator to transform the audit and accounting sector in response to an independent review led by British mathematician Sir John Kingman.
Following recommendations from the review, the Financial Reporting Council (FRC) will be replaced with a new regulator called the Audit, Reporting and Governance Authority (ARGA).
The government has welcomed the review’s vision for a new regulator with a new mandate, new leadership and “stronger statutory powers”. The government intends to quickly implement these reforms and “overhaul the sector”.
In the interim period, the government will be working with the FRC taking forward 48 of the review’s recommendations to address the shortcomings identified such as lack of transparency and to reinforce work to enhance enforcement activity.
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.
Secretary of state for Business, Energy and Industrial Strategy, 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.
“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.”
Sir John Kingman, chairman of the Independent Review of the FRC 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.”