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Government announces new UK audit regulator with stronger powers

Government announces new UK audit regulator with stronger powers

  • United Kingdom
  • Corporate

26-03-2019

Following the publication of the Kingman Review in December 2018, the Government has announced that the Financial Reporting Council (“FRC”) will be replaced with a new regulator called the Audit, Reporting and Governance Authority. This was one of the key recommendations made by the Kingman Review.

The new regulator will have a new mandate, new leadership and stronger statutory powers. The Government has published an initial consultation on implementing the reforms. Until the new regulator is in place, the Government will work with the FRC to take forward a number of the recommendations made by the Kingman Review.

What is going to change?

The Kingman Review and the Government consultation cover a number of areas, including the structure and purpose of the FRC, the effectiveness of core functions, oversight and accountability of the new regulator, and staffing and resources.

Specifically, the new regulator will be a statutory body, and will have powers to direct that changes to company accounts are made, rather than applying to court to do so.

There will also be greater sanctions available to the new regulator in cases of corporate failure, aimed at addressing the perceived failings of the FRC in high profile corporate failures such as the collapse of Carillion, and it is intended to be ‘forward looking’, rather than retrospective. This includes having greater powers in cases of serious concern, such as being able to require rapid explanations from companies where the regulator has raised concerns (see Chapter 3 of the Consultation document for a summary of the proposals here).

What is the timeframe for the changes?

The Government is taking a three pronged approach to the recommendations of the Kingman Review:

  • To proceed with all the reforms that can be delivered immediately;
  • To consult (including in the current consultation) on reforms that can be delivered in advance of legislation, but where there are significant policy choices to make in deciding how to implement; and
  • To highlight proposals that will require primary legislation, where the Government is seeking views but will consult later on detailed proposals.

The current consultation closes on 11 June 2019, but it is likely to be some time before we see implementation of the full package of reforms proposed in the Kingman Review.

Useful links

BEIS press release – Audit regime in the UK to be transformed with new regulator

BEIS consultation

Independent Review of the Financial Reporting Council (Kingman Review)

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