The government is wrong to ditch plans for the Audit and Reporting Governance Authority

Accounting and corporate governance are notoriously considered dull. But beneath the façade lies great power. Trade and investment rely on the probity of corporations and the credible quantification of economic activity by accountants. If boardrooms cannot be trusted or accounts are unreliable, business confidence falters and growth policy is built on smoke and mirrors.

But accounting is not a simple or a purely technical process – it relies on complex assumptions and requires professional judgement that is often contested (I wrote a whole book about this). ²² Gill M, Accountants’ Truth: Knowledge and Ethics in the Financial World, Oxford University Press, Oxford and New York, 2009  Maintaining standards really matters, which is the role of auditors and – overseeing them – the Financial Reporting Council (FRC).

Structural weaknesses were identified – and solutions agreed – years ago

Sir John Kingman described the FRC, in his 2018 review, as “an institution constructed in a different era – a rather ramshackle house, cobbled together with all sorts of extensions over time.” ³⁰ Kingman J, ‘Independent Review of the Financial Reporting Council', HM Stationery Office, December 2018, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/767387/frc-independent-review-final-report.pdf, p. 5.  Though less a self-perpetuating committee of grandees than it was, it still relies on voluntary funding from industry and regulates in part by consent of the relevant trade bodies. Following the collapse of Carillion, the Business Select Committee found that the FRC’s “weak response” contributed to a “crisis of trust in audit”. ³¹ House of Commons Business, Energy and Industrial Strategy Committee, The Future of Audit: Nineteenth Report of Session 2017-19 (HC 1718), The Stationery Office, 26 March 2019, https://publications.parliament.uk/pa/cm201719/cmselect/cmbeis/1718/1718.pdf, p. 3

A new regulator was at the centre of the report’s 83 recommendations. An Audit and Reporting Governance Authority (ARGA) was to replace the FRC, with clearer powers and duties set out in statute. In March 2019 the Conservative government accepted this recommendation ³² BBC, ‘UK audit watchdog to be replaced by new governing body’, BBC, 11 March 2019, retrieved 31 May 2023, www.bbc.co.uk/news/business-47530302  but by the time the then CEO of the FRC, Sir Jon Thompson, spoke at the Institute for Government in 2023 legislation was delayed and the FRC was already engaged in workarounds. 

The incoming Labour government included the necessary legislation in the King’s Speech in 2024 ³³ No.10 and Windsor C, ‘The King's speech 2024’, GOV.UK, 17 July 2024, www.gov.uk/government/speeches/the-kings-speech-2024  but despite cross-party consensus, industry support and the considerable effort that has gone into the proposals over several years, it has now decided not to proceed.

Improvements at the FRC do not remove the need to legislate

The FRC has significantly reformed itself since 2018, addressing more than half of Kingman’s recommendations. ³⁴ Financial Reporting Council, Delivering Audit Reform: follow-up to Business and Trade Committee session on 26 March 2024, parliament.uk, April 2024, https://committees.parliament.uk/publications/44859/documents/222754/default/  It has a clearer purpose, a new senior team, and more staff. But not everything that is needed is within its gift. As Kingman himself put it in select committee evidence last year, “they are up against large vested interests and they have to operate through persuasion rather than through power. We would never accept that with the banks. Why accept it with the audit firms?” ³⁵ Kingman J and others, Oral evidence: Delivering audit reform: follow-up, House of Commons Business and Trade Committee (HC 663), 26 March 2024, https://committees.parliament.uk/oralevidence/14595/pdf/, Q52  

Specifically, legislation is needed to address the fact that the FRC:

• relies on voluntary contributions from those it regulates for nearly 40% of its income
• can only take enforcement action against those company directors who happen to be members of the accountancy profession
• lacks powers to regulate most non-listed companies – and it can only request, not require, information concerning private or AIM listed companies
• lacks powers to promote competition in the statutory audit market. ³⁶ Financial Reporting Council, Delivering Audit Reform: follow-up to Business and Trade Committee session on 26 March 2024, parliament.uk, April 2024, https://committees.parliament.uk/publications/44859/documents/222754/default/  

These are large gaps. Each leaves the FRC’s progress since 2018 at risk of backsliding under gradual pressure from stakeholders as political attention drifts.

Ministerial justifications for inaction are specious

Blair McDougall, minister for small businesses and economic transformation, described scrapping the proposals for reform as a “difficult decision” in a letter to the chair of the Business and Trade Committee. ³⁹ McDougall B, untitled letter to Liam Byrne, 19 January 2026, https://assets.publishing.service.gov.uk/media/696e69f662bfa46d3881a299/Letter_from_Minister_McDougall_to_BTC_Chair_-_Audit_Reform_Legislation.pdf  But in reality the ARGA is a casualty of poor prioritisation and a hope – which might last until the next financial scandal – that the general public will not notice.

McDougall’s explanations for back-pedalling were threefold: to promote growth and reduce burdens; that the need for reform is now less pressing; and a lack of parliamentary time. The first is particularly questionable given the ARGA was developed as a pro-growth measure to increase confidence in UK corporate reporting, a rationale confirmed in a letter from McDougall’s predecessor as recently as September 2025 (albeit with the ARGA proposals by then slimmed down and renamed). ⁴⁰ Madders J, untitled letter to Liam Byrne, 4 September 2025, https://committees.parliament.uk/publications/49537/documents/263962/default/   

The second is valid to a point, but the ongoing problems set out above relate to the FRC’s duties and powers, not its operations. These cannot be fixed without legislation. 

The third, on parliamentary time, should simply be overcome. If the government can find time to create a new football regulator and to meddle in the work of the Sentencing Council, then it should be able to find time for this.

It is still possible to pick up some of the pieces

McDougall leaves open the possibility of a clearer legislative footing for the FRC, which would be far better than nothing and should be pursued. But this rearguard action is a poor second best. And time is of the essence: aside from wasting the work of many serious people, the government now faces a real risk that a hard-won consensus for change could fade before the job is done.