The government is set to introduce a new UK audit regulator with greater powers in response to a string of high-profile audit scandals.
The Audit, Reporting and Governance Authority will replace the Financial Reporting Council (FRC), which is to be scrapped.
The change comes as a result of criticism of the big four audit firms following the collapse of Carillion. The new regulator has been proposed by Sir John Kingman, who was tasked by the government to lead a review into the UK’s audit sector (see here).
Greg Clark, Secretary of State for Business, Energy and Industrial Strategy said that the new regulator will help to strengthen public trust in businesses. “The government sees a tough and robust regulator, and an audit sector with the highest standards, as a key part of attracting investors, jobs and growth to the UK,” he said.
The new Audit, Reporting and Governance Authority will enjoy greater powers than the FRC. It will directly regulate the biggest audit firms and will be able to impose greater sanctions in cases of corporate failure. The regulator will also be able to demand rapid explanations from companies and publish reports about a company’s conduct and management.
“Recent corporate failures have knocked confidence in some quarters in the ability of auditors to spot problems,” said James Burgoyne, Director – Claims & Technical, Brunel Professions. “The new regulator will have far greater powers than the old FRC and could help to drive improvements in audit performance. It will be interesting to see how the insurance industry reacts to these proposals, as audit work has traditionally been seen as higher risk, particularly for PLCs. If the number of negligence claims against auditors falls over time, this area might be reassessed.”
Brunel secures competitive professional indemnity insurance cover for accountants and financial advisers. To find out more call Mark Sommariva on 0203 475 3275.