The independent review of the Financial Reporting Council (FRC) has recommended that the body be replaced with an independent statutory regulator, the Auditing, Reporting and Governance Authority, which will have greater powers.
Commenting on the report’s significance for local government Rob Whiteman, CIPFA CEO, said: “It is important that there is strong scrutiny of local authorities’ finances and financial management, particularly at a time when acute financial pressure has led some councils to take on bolder and more risky investment strategies.
“We welcome this report which recognises that, within this changing set of circumstances, the time is now right to reconsider the public audit model and CIPFA looks forward to contributing to playing its part in the process.”
The review, led by Sir John Kingman, was ordered by business secretary, Greg Clark, following intense scrutiny of the accountancy firms and their regulator, especially after the collapse earlier this year of outsourcer Carillion.
The publication of the Kingman review on 18 December coincided with a report from the Competition and Markets Authority on the accountancy firms themselves.
This called for a separation of audit from consultancy work, and for the way auditors are appointed to be reformed.
The FRC currently regulates auditors, accountants and actuaries in the UK, a role that it performs in conjunction with the relevant professional membership bodies.
The report said: “Two major select committees have accused it, in the strongest terms, of timidity, a lack of pace and excessive closeness to those it regulates.
“These criticisms have put the FRC under an unprecedented spotlight.
“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.”
Some of theFRC’s failings, the reports says, are due to the way it was set up, and it particular the fact that uniquely among UK regulators it lacks a proper statutory base.
The new body will be responsible to Parliament and the Department for Business, Energy and Industrial Strategy.
The report says it should be funded by a statutory levy on the firms it regulates, rather than on a voluntary basis as is the case now with the FRC, and that it should have a more tightly defined remit.
