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Financial Reporting Council: Independent Review

Volume 656: debated on Monday 11 March 2019

The Government have published their public consultation in response to the independent review of the Financial Reporting Council (FRC).

The UK has always been a world leader in audit and accounting services, with world-class frameworks for corporate reporting, corporate governance and regulatory oversight. Our modern industrial strategy sets out our vision to ensure that the UK is the best place to start and grow a business and is an attractive place to invest. The Government see a tough and robust regulator, and an audit sector with the highest standards, as a key part of that strategy. Stronger regulation of audit will benefit all, giving shareholders, investors, and the wider public every confidence in company reports and audited accounts.

In April 2018, I commissioned Sir John Kingman to undertake a root and branch review of the FRC to ensure the UK continues to stand as a beacon, with a first- class regulator of audit and corporate reporting. The review published a comprehensive set of challenging recommendations in December 2018, designed to transform the regulation of these important functions which underpin the economic life of our country.

The Government welcome and shares the review’s vision for a new regulator with a new mandate, leadership, and stronger statutory powers. The Government intend to move swiftly to implement these reforms, replacing the FRC with a new regulator called the “Audit, Reporting and Governance Authority”. This new body will build on the UK’s status as a great place to do business and will form an important part of strengthening public trust in businesses and the regulations that govern them, ensuring that the UK maintains and advances its status as a place of the highest standards in audit. In the interim period, until the new regulator is in place, we will be working with the FRC taking forward 48 of the review’s recommendations.

Through the consultation the Government also seek views on how more complex recommendations should be taken forward; note where further detailed policy development will be undertaken, and a further consultation will be published; and confirm where matters are for other authorities to consider.

There is a range of important work going on in relation to the audit market, and we also look forward to receiving the findings of the competition and markets authority’s market study of the audit sector and of Sir Donald Brydon’s review of the quality and effectiveness of audit. That work, taken together with the independent review of the FRC, will enable us to deliver a major set of reforms of company audit, accounting and reporting which will ensure the UK’s corporate regime is of the highest quality.

The consultation document will be placed in the Libraries of both Houses and available on the website. The consultation will run for 12 weeks and I look forward to the continued contribution of interested parties.