UK directors to face fines in major overhaul of audit rules
UK directors will reportedly face fines for accounting failures at their companies as part of a major overhaul of the audit sector.
Long-awaited reforms, set to be published as early as next week, will place a tough new burden on bosses in an effort to improve audit standards.
Directors, rather than boards, will be held personally responsible for financial reporting and will face fines or temporary bans if they are found to have fallen short of their duties, the Financial Times reported.
The Big Four accounting firms will also be forced to split their audit and consultancy arms as part of plans outlined by new business secretary Kwasi Kwarteng.
PwC, Deloitte, KPMG and EY will all be made to break up their businesses under powers granted to new regulator the Audit, Reporting and Governance Authority (ARGA), Sky News reported.
The ARGA, which is set to replace the Financial Reporting Council, could also be given oversight of Britain’s largest private companies as well as those listed on public markets.
“Strengthening our corporate governance and audit regime will help to ensure that the UK remains a world leader in corporate transparency and advance its status as a place of the highest standards in audit,” a government spokesperson said.
“The government has accepted the findings of three independent reviews into audit and corporate reporting, and is committed to acting on their recommendations.”
“The new business secretary has been clear that audit reform is a priority for the department and we will publish comprehensive proposals shortly.”
Auditors have come under increased regulatory scrutiny in recent years, with corporate failures at Carillion and retailer BHS leading to three government-backed reviews that recommended a shake-up of audit.
The FRC last year asked audit companies to agree to operational separation by June 2024.
However, has not yet introduced legislation forcing change, partly due to Brexit and the outbreak of coronavirus.
The changes are designed to tackle concerns about the quality of auditing and the range of competition in the market.
However, the addition of further regulation will likely spark complaints of higher costs and an increased burden of red tape as firms look to recover from the pandemic.