Analysis: Audit watchdog faces catch-22 in hunt for new chief
Britain’s audit watchdog is on the hunt for a new chief executive who can face down the Big Four accounting firms after Jon Thompson announced last week he would leave the post to lead the grossly delayed HS2 project.
But in choosing a new boss, the newly-merged Department for Business and Trade has a difficult balance to strike.
The new chief executive will need to champion reform, as the UK government pushes forward with plans to replace the FRC with a new, more powerful regulator called the Audit, Reporting and Governance Authority (ARGA).
The shake-up sits in line with the government’s plans to boost the quality of audit work, in the wake of a series of high-profile accounting scandals, including forged documents KPMG gave the regulator following the collapse of Carillion.
The new candidate must be able to take on the Big Four and push forwards with the tougher stance the watchdog has taken under Thompson.
But this same person must also have the expertise for the role, and working for one of the Big Four accounting firms will equip them with the requisite skill.
This, however, puts them in the awkward position of having to regulate their former colleagues and employer.
The FRC has faced criticism it is run by the very people it is supposed to regulate, due to the watchdog’s habit of recruiting former Big Four partners.
For example, in 2021, when the FRC went on a hiring splurge and brought on 19 new members for its advisory panel, 14 of those had at some point in their career worked for the Big Four.
Critics have raised concerns in the past about the existence of a ‘revolving door’ between the Big Four and the FRC, and claimed the ‘toothless’ regulator has taken a muffled approach to overseeing the UK’s audit sector as a result.
So picking an ex-Big Four partner might be a tougher sell for the government unless they can assuage concerns of a conflict of interest, even if the expertise such a person might bring could be invaluable for the FRC.
It is more likely that a new FRC chief will be picked from a small pool of candidates, made up of experienced civil servants, ex-auditors, FRC insiders and high-profile business leaders.
Individuals already working in the FRC – including the watchdog’s new deputy CEO Sarah Rapson and its executive director Elizabeth Barrett – could also be in the running as a result of their knowledge and understanding of the regulator and its specific organisational needs.
High-ranking civil servants, similar to Thompson himself, who used to head HMRC, could also be in the running.
A City business leader with years of corporate experience – in the same vein as FRC chair Jan du Plessis who previously headed Rio Tinto and BT – could also lead the agency, providing the company has not had any major run-ins with regulators.
Whoever wins the spot in the end will need to start the job at the bottom of an uphill battle to keep the watchdog’s reputation intact.