New watchdog created
Financial Reporting Council axed after audit failures
Carillion’s collapse triggered calls for change
The watchdog for the accountancy profession is to be scrapped after being criticised over the failure of auditors to spot high profile company collapses.
The Financial Reporting Council (FRC) will be replaced by a new Audit, Reporting and Governance Authority which will have enhanced powers and be able to make direct changes to accounts, instead of applying to court.
An independent review of the FRC, led by Sir John Kingman, published its final report in December and recommended the shake-up in the supervision of accountants.
KPMG, one of the big four, handled Carillion’s accounts since 1999 and signed off its figures in March 2017, four months before the firm issued its first profit warning.
Failures by other firms to spot accounting problems resulted in the Competition and Markets Authority calling for change. In November, the FRC’s chief executive Stephen Haddrill announced he would be stepping down.
The new regulator will be able to:
- Directly regulate the biggest audit firms
- Impose greater sanctions in cases of corporate failure
- Require rapid explanations from companies
- Publish reports about a company’s conduct and management
The FRC’s chairman Sir Win Bischoff said: “We will move forward to implement the agreed proposals as soon as possible.”
Dr Ian Peters, chief executive of the Chartered Institute of Internal Auditors, said: “I welcome the government’s creation of a new Audit, Reporting and Governance Authority. We called for radical change to the audit regulator last year, following the devasting collapse of Carillion, and we are pleased that the government has acted quickly.
“This new body must play a leading role in preventing future Carillions. We will support the new Audit, Reporting and Governance Authority’s vital work to raise corporate governance standards in the UK.”