Government committed to setting up ARGA audit regulator

The government has signalled its intention to set up a new audit regulator to replace the Financial Reporting Council FRC, despite the cabinet reshuffle which saw the business secretary replaced

Plans for the creation of the Audit, Reporting and Governance Authority (ARGA) to replace the FRC are still on track following the appointment of a new secretary of state for business, Ashok Sharma, who replaced Andrea Leadsom at the Department for Business, Enterprise and Industrial Strategy (BEIS) in the recent reshuffle.

A BEIS spokesperson told Accountancy Daily: ‘A competitive audit market is crucial to confidence in business.

‘We are committed to bringing forward reforms to ensure the UK continues to be a world leader in audit and accounting services and will set out our proposals in due course.’

Work has begun to reform and bolster the FRC, with a strong new leadership team recently taking up position, led by Sir Jon Thompson as chief executive and Simon Dingemans in the role of chair.

The change of leadership at BEIS will inevitably have some impact on ARGA plans while the new minister gets to grips with his brief and reviews the current status of audit reform. As a chartered accountant, Sharma is at least in a strong position to understand the fundamental issues, while the collapse of Carillion and Thomas Cook have both been costly corporate failures, which have left the taxpayer picking up substantial bills.

This follows three major reviews of the audit market, completed in 2019, including Kingman, Brydon and the Competition and Markets Authority (CMA) report. These all called for a radical overhaul of the current audit market, ranging from the breakup of the Big Four firms to reduce conflict and increase competition, to the introduction of joint audits and extension of the audit remit to include fraud and forensic oversight.

The FRC is going ahead with some of the reform measures proposed but is waiting for the government to make a final decision on the powers and status of the new ARGA body. Any change of status will have to be laid in parliament via a statutory instrument which is expected to prescribe stronger regulatory and market oversight powers.

Sir Jon Thompson, CEO of the FRC, said: ‘Before the reshuffle we were relatively clear about the timetable for the ARGA. We met the secretary of state [Andrea Leadsom] to discuss this and we were clear about the future direction, but the reshuffle means that we have a new business secretary in charge so we need to have more meetings, but the department [BEIS] is geared up and has all the information it needs.’

Although the cabinet reshuffle may have stalled progress temporarily with Alok Sharma now in charge at BEIS, Sir Jon is confident that significant progress has been made to date, explaining that the government has the three substantive reviews and the ball is in its court.

‘The government needs to give its response to the public policies in Kingman, for example should the UK adopt Sarbanes Oxley.

‘It also needs to respond to the CMA review, on the main issues such as regulatory oversight of audit committees, joint audits and separation of the audit function in firms.

‘In Donald’s [Brydon] report, there are a number of recommendations that require legislation, but this could be split into two parts. The report has a very broad landscape of recommendations – 64 in all, including public policy issues. The government needs to decide whether it wants to adopt those, and whether it wants to make changes to the Companies Act.

‘There was a legislative slot in the Queen’s Speech for audit reform and we have been giving the government advice on the different aspects of the reports.

‘I don’t think you’d expect draft legislation until the autumn. We still need the government response to the three reports, and then there would need to be consultation with key stakeholders – those who want to respond – and then draft legislation,’ he added.

Later this week a conference organised by the Westminster Business Forum on 26 February will focus on corporate governance in the UK, with the establishment of the ARGA top item on the agenda.

 

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