The audit regulator is pressing ahead with plans to split the Big Four audit firms despite no confirmation from government about the legal position, reports Accountancy Daily.
The UK’s Financial Reporting Council (FRC) has written to the UK’s largest audit firms, including the Big Four and BDO, Grant Thornton and Mazars, setting out the regulator’s expectations for operational separation to bring about audit quality improvements and audit market resilience.
While the legislative timetable is beyond its control, the FRC is adamant that it will not sit back and wait for the government to take action on much-needed audit reform. It has now decided to move unilaterally, but ‘on a collaborative basis with the firms’, according to a source, who said that the FRC had told the top seven UK audit firms that they need to overhaul their fundamental structure.
Claire Lindridge, FRCs director of audit firm monitoring and supervision (AFMAS) said: ‘The FRC’s focus is to ensure audit firms put audit quality front and centre, with new independence and financial transparency guidelines to support this.
‘We expect the firms to put in place independent governance for the audit practice and ensure that the audit practice Is appropriately ring-fenced from the rest of the firm so that financial results are clear and transparent.’
The latest position of the government is that the Department for Business, Energy and Industrial Strategy is reviewing the three major audit reviews – Brydon, Kingman and the CMA – with a view to making a final decision on the future of the audit market soon.
Speaking at a conference on corporate governance organised by the Westminster Business Forum last week, Sanu de Lima, deputy director of corporate governance at BEIS told an audience of senior investor stakeholders and governance experts that audit reform was a priority for BEIS, with a likely overhaul of the Companies Act 2006 (CA 2006) as well as secondary legislation to create a replacement for the FRC – the Audit, Regulatory and Governance Authority (ARGA).
The ARGA will be led by the current senior management team, appointed last October, with Sir Jon Thompson at the helm. He is the former head of HMRC where he was permanent secretary and has a reputation for transforming and overhauling departments where he has worked.
Unlike the FRC, the Audit, Regulatory and Governance Authority (ARGA) will have a statutory footing and will have substantial monitoring and supervisory powers. It is unlikely that the ARGA or the regulatory changes will be on the statute book before spring 2021.