The UK government has initiated what it calls a “root and branch” review of the Financial Reporting Council (FRC), the agency that regulates auditors, accountants and actuaries in the United Kingdom.
“The UK has a strong reputation as a dependable place to do business, but this needs to be continuously updated and it’s important to ensure all of our regulators continue to drive high standards,” said Business Minister Greg Clark in a statement.
“This review is part of the government’s industrial strategy aim of creating a business environment that ensures our regulators are fit for the future and our markets are working for consumers.”
The review comes on the heels of the failure of construction and outsourcing company Carillion, whose accounts were given a clean bill of health by its auditors. The FRC has been criticized for allegedly moving too slowly on perceived shortcomings, not only in the case of Carillion but also of the UK banks that had to be bailed out by the government during global financial crisis in 2009.
The review will assess how the FRC is managed, what its impact has been and the gaps, if any, in its powers. The watchdog has said that it lacks enforcement powers in some areas. It can prosecute only company executives who are members of a professional accounting body, for example, and it has no power to enforce the corporate governance code that it imposes on UK companies.
Former British colony Hong Kong has a similarly named Financial Reporting Council, which is in the process of being migrated from self-regulation to independent oversight. Legislators are currently debating the Financial Reporting Council (Amendment) Bill that is designed, according to the agency, to “bring Hong Kong’s auditor regulatory regime in line with major international capital markets.”
Singapore, also a former British colony, formed the statutory body Accounting and Corporate Regulatory Authority in 2004 to act as the national regulator of business entities, public accountants and corporate service providers.
Neither body currently vets senior appointments in major accounting firms, a practice that the UK’s FRC has initiated. While the FRC has no veto power over the appointments, it says it will discuss with firms how well candidates for key leadership and governance roles . . . meet our expectations in terms of experience, skills and attributes.”