Transition to new audit regulator continues with further reforms

The Financial Reporting Council (FRC) has published the next steps as the reform to the UK’s audit and corporate governance framework continues.

Over the next three years the FRC will transition to a new regulator, which will be called the Audit, Reporting and Governance Authority (ARGA).

The government hopes reforms will mean greater accountability for big business as it aims to address the high level of concentration in the public interest entity (PIE) audit market.

The purpose of the reforms is to help prevent sudden large-scale collapses like Carillion and BHS, which had a negative impact on many small businesses and led to job losses.

 

New powers

The government has previously said that ARGA will have the power to ban failing auditors from reviewing large companies’ accounts.

In addition, the largest private companies – not just those listed on the stock exchange – will come under the scope of the regulator. This will apply to unlisted companies with over 750 employees and with over £750 million annual turnover.

 

Further clarity

The FRC’s latest announcement aims to provide further clarity for stakeholders on how the work of reform will be delivered ahead of government legislation.

That work includes revising existing codes, strengthening auditing and accounting standards, setting expectations to drive behavioural change ahead of statutory powers, and the development of guidance to address issues set out in the Government Response.

The FRC’s Position Paper sets out proposed changes to the UK Corporate Governance Code.

 

Generational opportunity

It says, this will provide a stronger framework for reporting on the effectiveness of internal controls and Board responsibilities for expanded sustainability and ESG reporting, and new guidance on enhanced resilience statements and fraud reporting by directors.

Sir Jon Thompson, CEO at the FRC, said:

These long-awaited reforms are a once-in-a-generation opportunity to ensure corporate Britain upholds the highest standards of governance and protects those stakeholders who rely on high-quality reporting.

While we await government legislation, the FRC is pressing ahead with those changes to standards and codes which will improve and enhance the UK’s audit and corporate governance framework and to lay the groundwork for the creation of ARGA.