U.K. to Replace Old Accounting Regulator with New One Meant to Be More Effective

By:
Chris Gaetano
Published Date:
Mar 12, 2019
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The United Kingdom will replace its accounting regulator, the Financial Reporting Council (FRC), with the Audit, Reporting and Governance Authority (ARGA), a more powerful regulator created in response to a series of major accounting scandals over the past year, according to the BBC

The Big Four have come under increasing scrutiny and criticism in the United Kingdom, sparked by the collapse of a large government contractor with ties to each of the firms. This collapse, in turn, prompted additional scrutiny of other audits, leading to fines against KPMG for its audit of Quindell and against PwC for its audit of BHS. Amid the revelations, some in the government have even called for a breakup of Britain's Big Four. This criticism, though, also extended to the FRC,  the audit profession's chief U.K. regulator, for failing to properly supervise these firms: a House of Commons report described the regulator as "timid" and "feeble" in the face of the Big Four, saying that "we have little faith in the ability of the FRC to complete important investigations in a timely manner."  

Because of this criticism, an independent review of the FRC called for the creation of the ARGA, the new regulatory body, with powers beyond those which the FRC possesses. The review said that the FRC, which had been relatively obscure until now, is "an institution constructed in a different era" that is "built on weak foundations." The report said that the FRC only recently came to understand itself as a regulatory body at all, having existed as a private institution for much of its history.

Among the powers the new ARGA will have that the previous FRC did not include the ability to: 

  • * Directly regulate the biggest audit firms
  • * Impose greater sanctions in cases of corporate failure
  • * Require rapid explanations from companies
  • * Publish reports about a company's conduct and management

 

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