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A delay in creating a tougher British auditing regulator means the current watchdog is “sheriff of only half a county”, beholden to the goodwill of accountants for funding and data, lawmakers were told.

After the collapse of builder Carillion, retailer BHS and cafe chain Patisserie Valerie, three government-backed reviews proposed in 2018 and 2019 sweeping changes to auditing and corporate governance, including a new Audit, Reporting and Governance Authority (ARGA).

ARGA would replace the Financial Reporting Council (FRC), armed with more powers to deal with powerful accounting firms, such as EY, PwC, Deloitte and KPMG, the “Big Four” that dominate auditing of listed companies. However, several years later the government has yet to introduce legislation to set up the new watchdog.

FRC Chief Executive Richard Moriarty told parliament’s business committee that the watchdog has come a long way in implementing many of the recommendations from the reviews, but “serious gaps” remaine that needed filling with legislation.

For example, company directors are not held to the same standard of accountability as accountants as the FRC can only punish directors who are qualified accountants.

The regulator is also “beholden” to accounting firms for information used in investigations, whereas other regulators can demand data, Moriarty said.

The watchdog has no competition powers and also has to “beg in a voluntary way” for about 40% of its income.

“At the moment I’m sheriff for only half the county,” Moriarity said, adding that he was asking for powers other regulators already had.

Business minister Kevin Hollinrake said significant progress has been made by the FRC using existing powers to improve audit quality under new leadership.

“Legislation is a last resort, rather than a first resort, I would say. We are not in a crisis situation,” Hollinrake said.

“We want to make sure we don’t put undue burdens on businesses.”

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The government unexpectedly pulled draft rules from parliament in October that would have applied some of the lessons from Carillion and BHS.

It also gave the FRC a new remit to consider Britain’s competitiveness, and the watchdog later ditched proposals to toughen corporate governance rules for listed companies after heavy lobbying by the London Stock Exchange.

John Kingman, who chaired one of the three government-backed reviews, told lawmakers that without ARGA there was a risk of falling back on improvements made at FRC.

“The house has been impressively rebuilt… but it’s still on inadequate foundations,” he said.

“The peril of that is they are up against large vested interests, and they have to operate through suasion and not by power,” Kingman said.

The FRC announced in March it was freezing staff expansion plans due to the legislative delay in transforming it into ARGA.

As its establishment moves “further over the horizon”, the audit reform to bring vibrant competition is slowing down, Scott Knight, Head of Audit and Assurance at accountants BDO told lawmakers.

It means change will “take decades”, said David Herbinet, Head of Audit and Assurance at accountants Mazars.

Huw Jone Reuters

Few institutions wield as much influence and prestige in the history of accountancy as the Institute for Chartered Accountants in England and Wales (ICAEW). Established as a pioneering force in the realm of accountancy, the ICAEW has played an instrumental role in shaping global standards, professional ethics, and educational pathways in the field.

Accountancy Today delves into the vast history of the Institute for Chartered Accountants in England and Wales from its 1880 beginning to the present day

Here we revisit the history of the storied body, the humble beginning of the institution and the important role it played in codifying the profession as well as the important regulatory role it now plays today.

Birth and early growth

The roots of the ICAEW trace back to the dawn of the 19th Century, a period marked by the burgeoning industrial revolution and the consequent need for robust financial stewardship. In 1880, a group of visionary accountants convened at the Gray’s Inn Coffee House in London to formalise their commitment to uphold integrity and expertise in the burgeoning field of accountancy.

Until the mid-19th Century, the role of accountants in England and Wales was restricted to that of bookkeepers, in that accountants merely maintained records of what other business people had purchased and sold.

However, with the growth of the limited liability company and large scale manufacturing and logistics in Victorian Britain, a demand was created for more technically proficient accountants to deal with the increasing complexity of accounting transactions dealing with depreciation of assets, inventory valuation and the Companies legislation being introduced.

It was formed of five associations that existed before its royal charter. These were the Incorporated Society of Liverpool Accountants, Institute of Accountants in London, Manchester Institute of Accountants, the Society of Accountants in England and the Sheffield Institute of Accountants.

The institute received its royal charter in 1880 from Queen Victoria, thus solidifying its status as a main authority in the realm of accountancy. From its inception, the ICAEW set out to establish rigorous standards of professional competence and ethical conduct, serving as a beacon of trust and reliability in an increasingly complex financial landscape.

Pioneering leadership and advocacy

Throughout its formative years, the ICAEW distinguished itself through visionary leadership and unwavering advocacy for the advancement of the accounting profession. Under the guidance of pioneering figures such as Charles Fitch Kemp, the institute spearheaded initiatives to enhance professional education, promote best practices, and safeguard the public interest.

In 1920, following the Sex Disqualification (Removal) Act 1919, the organisation admitted Mary Harris Smith, who became the first woman-chartered accountant in the world.

One of the ICAEW’s landmark achievements came in 1948 with the establishment of the Accountancy Foundation, a groundbreaking endeavour aimed at fostering collaboration between academia, industry, and the profession. This initiative underscored the institute’s commitment to innovation and continuous learning, laying the groundwork for future advancements in the field.

In 1957, ICAEW merged with the Society of Incorporated Accountants which was originally founded in 1885 as the Society of Incorporated Accountants and Auditors.

Upholding standards

As the 20th Century unfolded, the ICAEW’s influence transcended national boundaries, assuming a pivotal role in shaping global accounting standards and practices. Through strategic partnerships and collaborations with international bodies such as the International Federation of Accountants (IFAC) and the International Accounting Standards Board (IASB), the institute played a key role in harmonising financial reporting frameworks and promoting transparency in global markets.

The ICAEW’s commitment to excellence and professionalism also manifested in its rigorous certification process, which remains a gold standard for aspiring accountants worldwide. The prestigious ACA/FCA designation, bestowed upon qualified professionals who demonstrate proficiency, integrity, and ethical conduct, serves as a hallmark of distinction in the accounting profession.

As an improvement regulator, ICAEW works to protect the public by making sure ICAEW Chartered Accountants, firms that are regulated by ICAEW and students studying with ICAEW maintain the highest standards of professional competency and conduct.

An improvement regulator works to educate as well as monitor the quality of its firms and members’ work and enforce change (change can include restrictions, penalties, exclusion from membership or from working in a regulated area) when needed.

To ensure impartiality, the regulatory and disciplinary roles of ICAEW are carried out by a separate department, the Professional Standards Department. All of this work is overseen by several layers of independent governance; an independent board, the (IRB) and regulatory and disciplinary committees, where at least half of each board must be non-accountants, and oversight bodies including the Financial Reporting Council and the Insolvency Service.

In the face of rapid technological advancements and evolving regulatory landscapes, the ICAEW has remained steadfast in its commitment to adaptability and innovation. Recognising the transformative potential of emerging technologies such as artificial intelligence and blockchain, the institute has embraced digitalisation as a means to enhance efficiency, accuracy, and accessibility in financial reporting.

Moreover, the ICAEW has continued to advocate for regulatory reforms aimed at strengthening accountability and restoring public trust in the wake of financial scandals and corporate malfeasance. Through thought leadership initiatives, policy advocacy, and public outreach efforts, the institute remains at the forefront of efforts to promote ethical governance and responsible stewardship in the corporate world.

In the years to come, the ICAEW’s role as a standard-bearer of professionalism and ethical conduct will only grow in importance, as stakeholders increasingly demand accountability, transparency, and integrity in financial reporting and corporate governance. Through collaborative partnerships, cutting-edge research, and forward-thinking initiatives, the institute will continue to shape the future of the accounting profession, ensuring that it remains a force for good in the world of finance.

Liam writes in Accountancy Today

The FRC is set to transition to the new Audit, Reporting and Governance Authority (ARGA) from April 2024

The UK government has long proposed reforms to the audit and corporate governance framework. 

Back in September 2020, Sir Tony Redmond’s Independent review into the oversight of local audit and the transparency of local authority financial reporting had found “serious concerns” regarding the state of the local audit market and regarding the efficiency of audit firms. 

This review also called for a broader effort to enhance corporate transparency and accountability following high-profile corporate collapses and audit failures. 

As a result, the review proposed the establishment of a new regulator to oversee the audit profession — a proposal welcomed by the Government with plans to introduce the Audit, Reporting and Governance Authority (ARGA) in the UK. 

What is ARGA?

Since 2021, ARGA has been proposed to replace the Financial Reporting Council (FRC) as the UK’s audit regulator. 

Accordingly, the new regulator is intended to have enhanced powers and responsibilities, including oversight of the largest audit firms, setting standards for corporate governance, and enforcing compliance with auditing and corporate reporting requirements.

The FRC’s CEO, Sir Jon Thompson said: “These long-awaited reforms are a once-in-a-generation opportunity to ensure corporate Britain upholds the highest standards of governance and protects those stakeholders who rely on high-quality reporting.

“While we await Government legislation, the FRC is pressing ahead with those changes to standards and codes which will improve and enhance the UK’s audit and corporate governance framework and to lay the groundwork for the creation of ARGA.”

What is the need for it?

In March 2021, the Government announced its plan to establish ARGA in a white paper titled ‘Restoring trust in audit and corporate governance’. Up to now, the functions within the existing local audit framework are currently delivered by the Financial Reporting Council, (FRC), the Institute of Chartered Accountants for England and Wales, (ICAEW), the National Audit Office, (NAO), Public Sector Audit Appointments Ltd (PSAA) and Smaller Authorities Audit Appointments Ltd (SAAA), alongside the Chartered Institute of Public Finance and Accountancy’s (CIPFA) code of practice on local authority accounting.

But each of these bodies, the Government argued, has been “hampered by both a coherent response to challenges arising and a nimble response to changing imperatives” due to each one having its own organisational objectives. 

The FRC currently regulates local audit and is delegated specific functions, including oversight of the regulation of auditors of local public bodies by Registered Supervisory Bodies, and the oversight and monitoring for audits of significant local public bodies. 

The Government has agreed that ARGA will continue to fulfil this role and, in addition, it will have broader responsibility for the local audit framework, by taking on statutory responsibility for the Code of Audit Practice and associated Auditor Guidance Notes that are currently prepared and issued by the National Audit Office (NAO). 

In addition, the new regulatory body has also been proposed to prevent corporate failures such as  the collapse of Carillion with £7bn of debt in 2018 — and for which its auditor KPMG was fined only at the end of 2023. 

Overview of the new ARGA objectives

According to the White Paper published in 2022, the regulatory principles ARGA will be subjected to are:

• Promoting innovation in statutory audit work, corporate reporting, corporate governance and actuarial work
• Promoting brevity, clarity and usefulness in corporate reporting
• Working closely with other regulators from the UK and internationally
• Anticipating emerging corporate governance, reporting, professional regulation, actuarial or audit risks by being forward-looking and acting proactively where possible

Following the regulatory principles, ARGA will have new powers to hold PIE directors to account if, in reporting, they do not fulfil their statutory duties as well as powers to monitor the audit market and audit firm resilience more effectively and powers to take action to act against regulatory non-compliance. 

In addition, the new regulator will be able to obtain information from companies, accountants, auditors, actuaries and relevant third parties and powers to set minimum requirements for audit committees in relation to the appointment and oversight of auditors. 

The White Paper also set out that ARGA will be required to produce an annual report that is submitted to the Secretary of State and laid before Parliament. The annual report will include reporting on the regulator’s broader regulatory activities, including performance of the regulator’s enforcement function, to enable greater parliamentary scrutiny of the regulator’s work and performance.

The Government stated: “In exercising both the new powers and powers that it will “inherit” from the FRC, ARGA will need to determine if those that it regulates have met their legal and other obligations, for example requirements set by a relevant recognised supervisory body. Where there has been a breach of legal duties or recognised and accepted standards, ARGA will have powers to take action and the types of actions that ARGA will be able to take will depend on the nature and seriousness of the breach in question.”

How will FRC support the transition?

So far, the FRC has welcomed the Government’s response to the announcement and, in July 2022, has published a position paper highlighting how it will ensure a smooth transition. 

Firstly, the FRC has said it will revise the existing codes, standards and guidance to implement reforms. The focus of the revisions will be to provide “additional support” where reporting is weaker, as well as to reflect the wider responsibilities of the Board and Audit Committee for expanded Sustainability and ESG reporting. 

The council will also develop new standards to allow for voluntary adoption ahead of legislation, such as the Minimum Standards for Audit Committees, as well as setting high-level expectations around the future supervision and monitoring activities which will flow from the revisions to existing codes, standards and guidance. 

When will ARGA be implemented?

As the new audit regulator, ARGA will also have the responsibility to hold companies to account and will need statutory responsibilities and powers. In order to do so, the government has set out proposals for the set up of a dedicated local audit unit within ARGA to ensure that it will have sufficient focus and expertise when it becomes system leader for local audit. 

Yet, statutory responsibilities will require the further approval of Parliament and it is so far unclear how much time the process will take.

According to FRC’s latest 2023-26 draft 3-year plan, the planning assumption for ARGA’s start date has been pushed to April 2024.

The intention of the Government remains to create ARGA and equip it with its powers at the “earliest possible juncture”, since many of these factors represent work that ARGA will need to do. The timescale for this and for other legislative measures will depend on the availability of Parliamentary time and on its agreement to the proposals. 

Article from Accountancy Today Sofia Floris

Gen Z talent are more likely to put D&I at the forefront of their job search, with 76% of this age group rating it as a key factor in their choice of organisation

Some 64% of UK finance professionals have rated diversity and inclusivity as a key factor when choosing an organisation to work for, according to ACCA’s latest annual Global Talent Trends Survey. 

While diversity and inclusion (D&I) strategies are nothing new, ACCA has found that they have risen in importance amongst financial talent when it comes to choosing a place to work. This has put the pressure on employers to deliver D&I policies in order to attract and retain the best talent. 

According to the survey, Gen Z talent are more likely to put D&I at the forefront of their job search, with 76% of this age group rating it as a key factor in their choice of organisation. 

ACCA’s research has been backed up by other studies, which also showed that Gen Z is “more principled” than their older counterparts, as working in a diverse and inclusive environment matters more to them than salary.  

However, with an ongoing cost-of-living crisis, some 50% of UK finance professionals are planning to ask for a pay rise within the next 12 months, while a further 49% believe that the best way to secure a pay rise is to leave their current organisation. 

In addition, with 54% of finance professionals expecting their next career move to be external to their current organisation, ACCA has urged employers to embrace this insight and take steps to retain talent.

Without the shoring up of other workplace factors like diversity and inclusion, hybrid working models and mental health support, ACCA believes there is a real risk that employers could face a move of half of their current workforce in the next 12 months.

Gemma Gathercole, strategic engagement lead for England at ACCA, said: “The latest Global Talent Trends report shed interesting light on the situation around the world and at home here in the UK. 

“While the UK is outperforming in some areas such as offering hybrid working and mental health support, it’s clear that D&I policy is a growing factor of importance for finance professionals.”

She added: “Equally important is skills and training. Finding ways to support employers in implementing effective D&I strategies, attracting and retaining diverse talent, and remaining competitive from a salary and job opportunities perspective is something ACCA will continue to support members with through education and policy outreach.”

Corina Duma writes in Accountancy Today