By Huw Jones
(Reuters) – Britain will create a new regulator to police accountants who check the books of companies in response to collapses at construction firm Carillion and retailer BHS that triggered calls for root-and-branch reform of the audit sector its supervision.
Business minister Greg Clark said on Monday a new, more powerful regulator would replace the Financial Reporting Council (FRC), criticised by lawmakers for being “timid” in its handling of accountants and too close to the “Big Four” accounting firms that dominate auditing – PwC, KPMG, Deloitte and EY.
“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 business and the regulations that govern them,” Clark said in a statement.
He was responding to recommendations from an independent review by John Kingman to scrap what it called the “creaky” FRC and create a new Audit, Reporting and Governance Authority (ARGA).
Clark, who published a consultation paper on implementing the Kingman review on Monday, said the setting up of new leadership at the top of the FRC, which will transition into the new authority, would begin shortly with the recruitment process for chair and deputy chair.
The new watchdog will for the first time have powers to make direct changes to accounts rather than apply to a court to do so. It will have duties to protect the interests of customers and the public, and regulate the biggest audit firms directly.
There will also be tougher sanctions in cases of corporate failure, including powers to require “rapid explanations” from companies and in the most serious cases, publish a report about the company’s conduct and management.
The Investment Association, which represents asset manager that invest in companies, said it was vital the new regulator was established as soon as possible and properly reflected the voice of investors.
Britain’s Competition and Markets Authority (CMA) has proposed shaking up the audit market by requiring the top 350 listed companies in Britain to have two auditors, one of them not from among the Big Four, in order to improve standards.
Legislation will be needed to implement some of the Kingman and CMA reforms, and Clark is due to be quizzed by lawmakers on Wednesday on when he proposes bringing a draft law before a parliament clogged with business related to Britain’s departure from the European Union.
(Reporting by Huw Jones; Editing by Mark Potter)