Britain's Business Secretary today confirmed plans to replace the Financial Reporting Council in a move to break up monopolies among the ‘Big Four’ accounting firms.
The existing financial regulator will be replaced by the proposed Audit, Reporting and Governance Authority (ARGA), which will have the ability to impose tougher sanctions and require public companies to diversify the auditors they use.
Failing auditors will be banned from reviewing large companies’ accounts.
The move is designed to tackle the dominance of the ‘Big Four’ audit firms and “reduce the risk of sudden big company collapses” such as Carillion and BHS, the government said in a statement.
Under the new rules, FTSE350 members will be required to appoint an auditor outside the Big Four or to allocate a portion of the audit to a smaller firm to bolster competition.
Directors at premium-listed companies will also be required to state whether the company has effective internal controls under the Corporate Governance Code.
"To curtail the unhealthy dominance of the ‘Big Four’ audit firms, FTSE350 companies will be required to conduct part of their audit with a challenger firm," the government said.
"The new regulator, ARGA, will also be given the power to make big audit firms keep their audit and non-audit functions operationally separate and to enforce a market cap if the state of the market doesn’t improve.”
Large public-interest enterprises, including unlisted companies with more than 750 employees and over £750m of annual turnover, “will have to explain how they are identifying and addressing risks, and to set out the steps taken to prevent and detect fraud”.