New audit watchdog will watch audit watchdogs!

Owl says: Alas, it seems the smaller audit companies will remain unaudited!

“The accounting watchdog will be shut down and replaced by a stronger regulator after a government-backed review deemed it a “hangover from a different era”.

Greg Clark, 51, the business secretary, said the government would move ahead with the recommendations of a review of the Financial Reporting Council last year by Sir John Kingman, 49, the chairman of Legal & General.

Sir John said it was “seriously inappropriate” that the FRC, formed in 1990, was funded by a voluntary industry levy and criticised it for hiring executives from the alumni networks of the Big Four firms. Consultation on its 48 recommendations will run until June.

The FRC will be dismantled as part of an effort to restore trust in the audit market after a string of accounting scandals and the failure of large businesses such as Carillion, the outsourcer, and BHS, the department stores chain.

It will be replaced by a new, more powerful watchdog called the Audit, Reporting and Governance Authority that will be accountable to parliament. Arga will be able to issue harsher penalties against companies and auditors after corporate failures and will be able to intervene directly in company accounts. It will be run by a new board, recruitment of which will begin immediately.

Arga will regulate the large firms of Deloitte, PWC, EY and KPMG, as well as supervising their audit work. It will have new powers to force companies and their directors to explain why a company failed and to publish reports on their conduct.

“The new body will build on our status as a great place to do business and will form an important part of strengthened public trust in businesses and the regulations that govern them,” Mr Clark said. He commissioned the Kingman review after the FRC was accused of being too close to the largest firms, too slow to investigate allegations of misconduct and not tough enough in punishing audit failings. …”

Source: Times (pay wall)