During an evidence section with the Business, Energy and Industrial Strategy (BEIS) Select Committee, Kingman, who led an independent review into the Financial Reporting Council’s (FRC’s) governance, impact and powers, said a new body should be implemented as soon as possible, replacing the FRC, its CEO and its board.
Late last year, he recommended the creation of the Audit, Reporting and Governance Authority (ARGA) to replace the FRC. He told MPs yesterday he would like to see the government “get on with this”.
He also said the FRC needs a chief executive and a new board. It has previously been announced that its CEO Stephen Haddrill will step down late this year.
“We need to see more challenge and more scepticism in audit,” he told MPs, adding that the new regulator would need to hold auditors to account and gain their respect.
“But we need a regulator that has got the tools, the culture and the mission to do something about that.
“Right now, the FRC does not have the tools to do the job. It does not have regulatory leavers over the audit firms at all. If I had to pinpoint one fundamental recommendation is that we move away from self-regulation at the major firms,” he added.
During the session, part of the Committee’s future of audit inquiry, Kingman also said stakeholders need to become more involved with the auditors and hold them to account.
He believed the engagement between stakeholders and the FRC was not “as deep or as strong as it should be”.
“It’s also true to say that while shareholders have the power of approval of an auditor, they hardly ever exercise the power to do anything,” he said. “It takes two to tango. I’d like to see a regulator that has much deeper relationships with investors but that is going to require investors to come to the party.”
In his independent review, the chair of UK Research and Innovation and chairman of Legal and General accused the watchdog of being a “hangover from a different world”.
He concluded that, compared to other regulatory bodies, the FRC is an anachronism. It has “no meaningful statutory basis”, and has taken “an excessively consensual approach to its work”.
Rachel Reeves, chair of the BEIS Committee said, "Sir John Kingman has pointed the finger at the FRC for taking a too consensual approach to its work. Given the repeated failures of the FRC in recent years, the suspicion is that the FRC has for far too long been going for the quiet word over G&Ts in City watering holes, when it should have been shouting from the rooftops about unacceptable performance and imposing effective sanctions.
"We need a proactive regulator ready to act decisively when it spies corporate failure rather than picking up the pieces in the wake of a corporate collapse,” she added.
The FRC has previously responded to Kingman’s recommendations saying that it has the “potential to bring about significant improvements to the work we do in protecting the interests of investors and the wider public”.