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The UK Government has announced a further delay to the long-anticipated establishment of the Auditing, Reporting and Governance Authority (“ARGA”).
This latest delay raises renewed questions about the future direction of audit regulation and governance reform in the UK, with no clear timetable now in place.
It has been seven years since the Kingman report recommended that the Financial Reporting Council (“FRC”) be replaced ‘as soon as possible with a new independent regulator with clear statutory powers and objectives’.
Kingman’s recommendations reflected perceived structural issues in how the audit industry is regulated, including issues with how the FRC was funded and gaps in its regulatory toolkit that the CEO of the FRC, Richard Moriarty described last year as leading to him being ‘sheriff for only half of the country’.
ARGA was designed to have an expanded remit to oversee audit, corporate reporting, and governance among public interest entities. The aim was to strengthen regulatory powers, encourage higher audit quality, and restore market trust.
Despite being omitted from Labour’s manifesto, indications from past statements and commitments indicated that ARGA was a significant agenda item for the UK Government. However, the exact timeline and the specifics of the implementation remained unclear.
Last week, the UK Government clarified in correspondence with the Business and Trade Committee that “due to the current volume of legislation before Parliament, the draft Audit Reform and Corporate Governance Bill will not be put forward for pre legislative scrutiny in this session”.
Rather, the UK Government intends to conduct “further consultation with a range of stakeholders in the coming months as we continue to refine our proposals”, noting that market oversight of the audit landscape has improved “dramatically” since previous accounting scandals.
Consistent with the UK Government’s growth-led agenda, the letter emphasises the UK Government’s priority to “strike the right balance between oversight and assurance for investors, whilst not placing unnecessary additional burdens on business”.
The Business and Trade Committee have responded by demanding the following clarifications from the UK Government:
The Chief Executive of the Institute of Chartered Accountants for England and Wales (“ICAEW”) has echoed the Committee’s concerns, stressing that “the government should bring the Audit Reform Bill forward now” noting it is a core part of the Government’s “correct prioritisation of a growth mission designed to attract capital and investment”.
The new delay brings considerable uncertainty about when, or if, ARGA will be created – despite persistent calls from industry for a clear commitment and timeframe for audit reform. Whilst the transition to ARGA remains unclear, the FRC (and UK audit sector) has undergone significant cultural and structural changes in the seven years since Kingman, and whilst ARGA and its enhanced statutory powers remains elusive, many of the issues in the audit sector have (to some extent) been resolved.
Despite these ongoing uncertainties, the FRC continues business-as-usual, having recently published its Annual Enforcement Review 2024 / 2025 (here). The review is notably silent on the prospect of audit reform, focussing instead on enforcement from the last year and the FRC’s own end-to-end review of its enforcement process (read more here).
We will shortly be publishing our own annual enforcement review in which we will set out some of the key audit and accountancy enforcement themes emerging from the last year and our views as to the trends and areas of enforcement focus for the year to come.
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