A new regulator will be created to reduce the risk of sudden big company collapses and safeguard jobs, as part of a government overhaul of the UK corporate reporting and audit regime.
Under plans revealed by the Department for Business, Energy and Industrial Strategy (BEIS), the Financial Reporting Council – which regulates auditors and accountants and sets corporate governance codes – will be replaced by a new, stronger regulator called the Audit, Reporting and Governance Authority (ARGA).
ARGA will have tougher enforcement powers and will be funded by a levy on industry. It will hold company directors accountable for failures in their corporate reporting and audit-related duties.
Directors who breach their legal duties to be open with auditors or lie about the state of their firm’s finances will face sanctions such as fines.
The government also intends to address “rewards for failure”, where directors receive bonuses despite their company collapsing.
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The effectiveness of the UK’s corporate reporting and auditing regime was called into question after the collapse of large companies including BHS, Thomas Cook and Carillion, which resulted in thousands of job losses.
In its response to a consultation on strengthening the UK’s audit, corporate reporting and corporate governance systems, BEIS says large companies will soon have to report in a “more comprehensible way” on their resilience and on how far their reporting is independently assured, which it says will benefit investors, suppliers, customers, workers and pensioners.
Large private companies’ corporate reporting and audit will also be subject to the same scrutiny as that of listed companies.
Minister for corporate Rrsponsibility Lord Callanan said: “Collapses like Carillion have made it clear that audit needs to improve, and these reforms will ensure the UK sets a global standard.
“By restoring confidence in audit and corporate reporting we will strengthen the foundations of UK plc, so it can drive growth and job creation across the country.”
In his foreword to the report, business secretary Kwasi Kwarteng said the government is preparing to publish a draft bill on the reforms.
“It will make the UK an even more attractive place in which to do business and to invest, keep the UK a world-leader in standards of corporate reporting and governance, and tackle the impact of sudden corporate collapses on small businesses and on hard-working people,” he said.
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