Auditing watchdog to be axed – not fit for purpose

“The watchdog which oversees Britain’s tainted auditors will be scrapped after it was branded a ‘ramshackle house’ in a report.

The Financial Reporting Council will be shut down and replaced with a new organisation under different leadership, after former civil servant Sir John Kingman uncovered a litany of problems.

Kingman’s findings – in a study commissioned by the Business Secretary Greg Clark – are a vindication for campaigners who have spent years warning the FRC is not up to the job.

Kingman, an ex-Treasury mandarin who is chairman of Legal & General, said the FRC lacks transparency, is too dependent on the goodwill of big auditors for funding and has been damaged by constant leaks of information.

In his report he calls for:

■ A new regulator with a beefed-up regime to take action against failing bean counters and much shorter investigations to minimise delay;

■ Blanket bans on accountants who join the watchdog from overseeing their former employers;

■ A requirement for auditors to report any serious financial problems at companies they oversee;

■ Powers for the regulator to boot out a firm’s auditor if they have concerns it is not doing a proper job.

The FRC has been slammed for repeatedly letting auditors off the hook over accounting scandals, from Tesco to failed bank HBOS.

It came in for criticism earlier this year after the collapse of outsourcer Carillion was missed by accountants.

Kingman said: ‘What this spotlight has revealed is an institution constructed in a different era – a rather ramshackle house, cobbled together with all sorts of extensions over time. The house is – just – serviceable, up to a point, but it leaks and creaks, sometimes badly.

‘The inhabitants of the house have sought to patch and mend. But in the end, the house is built on weak foundations. It is time to build a new house.’ “