British accountancy firms are to get a new regulator with more power over collapsing companies after a wave of scandals prompted calls for action to fix the sector.
The leadership of the audit watchdog, the Financial Reporting Council, will resign and the body will be rebranded as the Audit, Reporting and Governance Authority (Arga).
The business secretary, Greg Clark, pledged that the overhauled regulator would for the first time be a statutory body with powers to make direct changes to accounts rather than apply to court to do so.
Other potential new powers include requiring rapid explanations of irregularities and being able to publish reports about companies’ conduct and management.
Win Bischoff, the chair of the FRC for the last five years, will resign as soon as a replacement is found, and the deputy chair, Gay Huey Evans, will retire at the end of April. The former FRC chief executive Stephen Haddrill resigned last November.
The move came after the government accepted some of the conclusions of a review of the auditing sector led by John Kingman, the chairman of Legal & General. Kingman was highly critical of the FRC for the perceived weakness of its response to accounting scandals such as KPMG’s failure to spot the impending collapse of the support services and construction firm Carillion in 2018, and PwC’s work on the department store chain BHS.
Many of Kingman’s recommendations, however, including giving the new regulator the ability to call for new auditors or to replace a chief executive, have not yet been accepted in full, meaning the plans could still change significantly. A consultation on the changes will end on 11 June.
Kingman’s review was one of a number of reports on the sector.. One commissioned by the Labour party called for the “big four” auditors – KPMG, PwC, Deloitte and EY – to be banned from carrying out non-audit work. That followed a barrage of criticism of auditors’ role in waving through company accounts.
A report from parliament’s business select committee on Carillion’s collapse described the FRC as “chronically passive” and “too timid to make effective use of the powers they have”.
The Arga will have a duty “to protect the interests of customers and the public” rather than the accounting firms, after accusations that the FRC was too cosy with the companies it supervised. As part of those changes, the regulator will be funded through a statutory levy on auditors, rather than voluntary fees.
Clark, who will face questions on the audit sector from the business select committee on Wednesday, 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.”