The architect of sweeping audit reforms has hit out at the UK government for failing to legislate to create a new accountancy watchdog with more powers.
John Kingman, who led a review that recommended replacing the Financial Reporting Council with a new regulator to help restore trust in the scandal-hit audit market, said it was “disappointing” that his proposals had not been included in Monday’s Queen’s Speech.
In a letter to a parliamentary select committee on Tuesday, Sir John said he was “concerned about the risk of letting the FRC drift on, half-reformed and lacking the teeth that only legislation can give it”.
The Legal & General chairman and former civil servant, who published his damning review last year, pointed to the “unequivocal consensus around the need for change”.
A string of accounting controversies and corporate collapses in recent years including Carillion, BHS, Patisserie Valerie and most recently, Thomas Cook has intensified disquiet about regulation of the UK audit market.
In March, Greg Clark, then business secretary, promised the government would follow through on Sir John’s recommendations to scrap the FRC and replace it with the new Audit, Reporting and Governance Authority.
Mr Clark commissioned the review of the FRC by Sir John in the wake of the collapse of Carillion in early 2018 and other scandals as concerns mounted that the regulator was too slow to investigate misconduct, its sanctions were too lenient and its board too close to the industry it supervised.
On Tuesday, Andrea Leadsom, business secretary, told MPs the government would take forward most of the recommendations of the Kingman report. But she said she would wait for a parallel report by Donald Brydon into audit effectiveness.
It was her intention to “take forward this work” in early 2020 to “maximise all the learning points” from the recent collapse of Thomas Cook and other corporate failures, as well as a report by the Competition and Markets Authority, Mrs Leadsom said.
Rachel Reeves, the chair of the business select committee, said there was a “feeling that drift is being allowed to occur here”, given that Carillion collapsed at the start of 2018 and Sir John was commissioned soon afterwards. She suggested it was “a missed opportunity” not to include the legislation in the Queen’s Speech.
In a letter to the select committee written last week before the new session of parliament, Mrs Leadsom said the introduction of legislation needed to underpin the new regulator would “depend on the availability of parliamentary time.”
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