King’s Speech: Long-awaited audit overhaul green-lit as FRC scrapped for new regulator

It is full steam ahead on the creation of the new audit watchdog as the Labour government has unshelved the Audit Reform and Corporate Governance Bill, during the King’s Speech.

“Bills will be brought forward to strengthen audit and corporate governance, alongside pension investment,” announced King Charles in his speech today.

The long-awaited plan to reform the Financial Reporting Council (FRC) into a new regulator, the Audit, Reporting and Governance Authority (ARGA) was shelved last November by the previous government in order to focus on “growth and the UK’s competitiveness”.

The push for a new watchdog was as a result of the many high-profile scandals over the last number of years focused on audit and reporting failures which saw big companies collapsing, including BHS.

Now, three months after ARGA was due to be in place, it was revealed today that this Bill has been brought forward. However, it is not clear where the regulator will be headed up, after it was previously covered before the move was shelved that the CEO of this watchdog would be based in Birmingham.

In addition to the form of the new regulator, the draft bill also has other changes included which will form the platform of ARGA.

This includes its power to investigate and sanction company directors for serious failures in relation to their financial reporting and audit responsibilities. This will mean dir”ectors will face consequences for putting forward any dodgy accounts.

The draft Bill will be extending Public Interest Entity (PIE) status to the largest private companies and thus making sure the audits of those businesses are high quality and giving early warning of financial problems. It will also remove “unnecessary rules” on PIE’s.

There will be a regime to oversee the audit market put in place, which will protect against conflicts of interest at audit firms, and build resilience so quality audit is available to all companies that need it.

The draft Bill is expected to extend and apply UK-wide.

Commenting on the news, Institute of Chartered Accountants in England and Wales’ chief executive Alan Vallance said: “We are delighted that the new government has named legislation to reform corporate governance and audit as one of its priorities for the next parliament.”

“Establishing the new statutory regulator – the ARGA – and providing it with powers to take effective enforcement action against directors of UK public interest entities, is a crucial part of these reforms,” he added.

While Andrew Howell, head of the UK disputes and investigations at law firm Taylor Wessing stated that “corporate governance reform is long overdue, and it is a positive sign to see this on the new legislative agenda.”

“The key will be in the detail, and how the government balances oversight of corporate conduct and proportionate audit reform without bringing in excessive red tape,” he added.