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Firms back tamer watchdog: the new audit regulator isn't as fierce as many had feared.

Document Cited in Related
Vincent
AuthorPrickett, Ruth
PositionCorporate Governance

Government plans to merge the Accountancy Foundation (Ale) with the Financial Reporting Committee (FRC) to create a "super-regulator" have been greeted with relief by many business leaders. They had been concerned that it would impose draconian rules over the provision of consultancy services and enforce the rotation of auditing firms. Critics of the new watchdog, however, argue that it lacks teeth and will fail to prevent future Enron-style scandals in the UK.

The new organisation will oversee the Auditing Practices Board, the Accounting Standards Board, the Financial Reporting and Review Panel, the Investigative Disciplinary Board and the Professional Oversight Board. It is being billed as the creation of a new-style, independent FRC with the powers of the AF.

"These changes need to be seen as a package of mutually reinforcing measures based on the recommendations of the Higgs report, the Smith report, the reports of the Co-ordinating Group on Audit and Accounting Issues and the review of the regulation regime of the Accountancy Foundation;' explained John Grewe, director of company law, reporting and audit at the Department of Trade and Industry.

There would be tougher controls on auditor independence, he said. Firms must not have the same lead auditor for over five years and there would be a mandatory cooling-off period before an auditor could work again for a former client.

Anticipating criticisms, Grewe argued that the compulsory rotation of audit firms would have negative effects on audit quality and prove too expensive, while a total ban...

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