The accounting regulator is to be abolished and replaced by a new "enhanced" body following a damning review sparked by the collapses of high-profile companies such as Carillion and BHS.

The widely expected move comes after criticism of the Financial Reporting Council (FRC) in a review ordered by the government last year.

The FRC will be replaced by the Audit, Reporting and Governance Authority, which will have stronger powers and new leadership.

A review by Sir John Kingman highlighted a series of weaknesses in the "ramshackle" FRC - suggesting it was too cosy in the way it regulated auditors.

The government is now consulting on the Kingman review and said it intended to "move swiftly to implement these reforms and overhaul the sector".

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It said the new regulator would have powers to intervene directly and make changes to company accounts - instead of having to go to court - as well as the ability to regulate the biggest audit firms directly.

There will also be greater sanctions available in the event of corporate collapses, including powers to allow rapid explanations and in the most serious cases publish a report on them.

Sir John was asked to review the regulator after a series of corporate collapses brought the role of the audit sector - and in particular its "big four" firms KPMG, PwC, Deloitte and EY - into sharp focus and raised questions about how they are regulated.

KPMG has faced scrutiny for its oversight of Carillion, which went bust in January with debts of more than £5bn, while PwC came under the spotlight over its audit work at retailer BHS.

The government said having a "tough and robust regulator and an audit sector with the highest standards" was a key part of attracting investors, jobs and growth to the UK.

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."

The government said it would shortly begin recruitment for a new chair and deputy chair for the FRC, who will then transfer to the new regulator.

FRC chairman Sir Win Bischoff said the regulator welcomed the recommendations and that he would hand over responsibilities as soon as his successor is put in place.

Britain's accounting profession is wrestling with the implications of a series of regulatory reviews that will change the shape of the sector.

Late last year, the Competition and Markets Authority unveiled proposals to force a system of joint audits on large listed companies - an idea which has met fierce resistance from corporate Britain.

The audit sector is also being scrutinised in a separate review by London Stock Exchange chairman Sir Donald Brydon.</s>The accountancy watchdog is to be swept aside and replaced with an independent statutory regulator as part of a shake-up of the scandal-hit industry.

The accountancy watchdog is to be swept aside and replaced with an independent statutory regulator as part of a shake-up of the scandal-hit industry.

Accountants to have new regulator as part of reforms

The Business Secretary Greg Clark has announced that the Financial Reporting Council (FRC) will be abolished and replaced with a new regulator called the Audit, Reporting and Governance Authority.

It follows a review led by Sir John Kingman, and the new body will have a new mandate, new leadership and “stronger statutory powers”.

The authority will have “strategic direction” and duties to protect the interests of customers and the public by setting high standards of audit, corporate reporting and corporate governance.

Crucially, it will be able to hold companies and professional advisers to account and have greater sanctions available to it in cases of corporate failure.

These include new powers to require rapid explanations from companies and, in the most serious cases, publish a report about the company’s conduct and management.

The shake-up comes as the role of the dominant big four accountancy giants, KPMG, Deloitte, PwC and EY, comes under intense scrutiny, sparked by the failures of Carillion and BHS, and the ensuing criticism of the bean counters charged with auditing their books.

Mr 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.

“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”.

The Audit, Reporting and Governance Authority will regulate the biggest audit firms directly and have a “diverse board” and strong leadership to change the culture and rebuild respect of those it regulates.

The Government published a consultation on Monday on implementing the reforms.

Separate reviews by the Competition and Markets Authority and Sir Donald Brydon into the quality and effectiveness of audit will also be taken into account.

The CMA has proposed that audits of the UK’s biggest companies, listed on the FTSE 350, should be carried out by at least two firms, one of which should be from outside the big four of KPMG, Deloitte, PwC and EY.

The establishment of new leadership at the top of the FRC, which will transition into the Audit, Reporting and Governance Authority will begin with the recruitment for the chair and deputy chair shortly.</s>The U.K. is getting a shiny new audit watchdog with heightened powers following a string of recent high-profile company failures. It is critical that this new body appoints a leadership eager to use the weapons in its armory.

On Monday, the government broadly accepted the recommendations of Legal & General Group Plc Chairman John Kingman’s review into the current supervisor, the Financial Reporting Council. Consultation is underway on the creation of its successor: the Audit, Reporting and Governance Authority.

It’s all in the name. The transition from a council to an authority denotes that the new body will have statutory powers and a clear mandate from parliament to uphold and constantly review corporate reporting standards. The scope will go beyond numbers to include governance – a welcome extension given leadership and incentives are a key risk to performance. Unlike the FRC, ARGA will be able to sanction directors regardless of whether they are accredited members of the accounting profession.

Depending on the outcome of the consultation, the new regulator could call on a company to cut its dividend, and invite shareholders to boot out management. The new remit includes promoting brevity and comprehensibility in accounts and annual reports – three cheers to that.

The reforms aren’t perfect. The definition of so-called public interest entities is to be reviewed, potentially broadening the range of companies whose audits require heightened supervision. This risks imposing an added burden on smaller, entrepreneurial companies. After the collapse of cafe chain Patisserie Valerie, some will say just as well.

ARGA is nevertheless a step forward. Maybe it would have sufficed to just give the existing FRC new powers. But it makes sense to have a fresh start and fresh culture, even if the new body will be built on raw material from the existing regulator.

The success of the new regime will depend squarely on its own governance. There is no point to all this reform if ARGA’s leadership is overly cautious. Hopefully the search will pull out a rottweiler which barks early – and bites.

To contact the author of this story: Chris Hughes at chughes89@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.</s>The Government is moving ahead with plans to replace the UK's audit watchdog after it was accused of being a "ramshackle house" that "leaks and creaks".

Business Secretary Greg Clark said on Monday that the Financial Reporting Council (FRC), which MPs have previously called "toothless", will be replaced with a new regulator following a scathing report in December that called for the "ramshackle house" to be closed.

The recommendations followed a review led by former Treasury official Sir John Kingman, a key figure during the financial crisis and the chairman of Legal & General, who was hired to investigate whether the FRC was doing its job properly amid fears it was too soft.</s>The watchdog which oversees Britain’s auditors is to be scrapped and replaced with an independent body.

It comes as the role of the big four accountants – KPMG, Deloitte, PwC and EY – comes under scrutiny, sparked by the failures of Carillion and BHS and the ensuing criticism of how they were audited.

The Financial Reporting Council will be replaced by the Audit, Reporting And Governance Authority after a review by Legal & General chairman Sir John Kingman.

Business Secretary Greg Clark said the new watchdog will help strengthen public trust in businesses.</s>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 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 BHS, the department store chain.

However, many of Kingman’s recommendations – 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.”</s>Greg Clark said the new body would strengthen public trust in businesses IAN DAVIDSON/ALAMY

The accounting watchdog will be shut down and replaced by a stronger regulator after a government-backed review deemed it a “hangover from a different era”.

Greg Clark, 51, the business secretary, said the government would move ahead with the recommendations of a review of the Financial Reporting Council last year by Sir John Kingman, 49, the chairman of Legal & General.

Sir John said it was “seriously inappropriate” that the FRC, formed in 1990, was funded by a voluntary industry levy and criticised it for hiring executives from the alumni networks of the Big Four firms. Consultation on its 48 recommendations will run until June.

The FRC will be dismantled as part of an effort to restore trust in the audit market after a string…</s>March 11 (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)
The United Kingdom announces it will abolish the Financial Reporting Council, which regulates the nation's accounting industry, after it was criticised by an independent review following the collapse of several large organisations. It is to be replaced by the Audit, Reporting and Governance Authority featuring increased powers and new leaders.