The Financial Reporting Council (FRC) is to be scrapped and replaced by a new regulator for accountancy firms, the UK government has announced.
The Audit, Reporting and Governance Authority will have enhanced powers and be able to make direct changes to accounts, instead of applying to court.
The government said it wants new “strong” leadership to “change the culture” of the accounting sector.
The role of auditors in Carillion’s collapse has been criticised by MPs.
KPMG, one of the UK’s four largest accountancy firms, had handled Carillion’s accounts since 1999 and signed off its figures in March 2017, four months before the firm issued its first profit warning.
MPs now want to know how KPMG and other big four firms failed to spot warning signs at several British collapsed businesses in the last few years.
This resulted in the Competition and Markets Authority proposing a major shake-up of the industry, as well as the big four bosses’ appearance in front of MPs on the Business, Energy and Industrial Strategy (BEIS) Committee in February.
The accountancy industry’s watchdog has also come under fire for its handling of recent corporate collapses.
In November, the FRC’s chief executive Stephen Haddrill announced that he would be stepping down at some point in 2019, pending the government’s review of the council’s remit and role.
“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,” said Business Secretary Greg Clark.
The new regulator has been announced in response to a government commissioned review led by Sir John Kingman.
For the first time, 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 chair Sir Win Bischoff said the watchdog welcomed the publication of the government’s consultation.
“In line with the consultation document we believe the speedy implementation of the recommendations can help increase public confidence in audit in the UK,” he said.
“We will move forward to implement the agreed proposals as soon as possible.”