The leader of the UK’s key governance watchdog has stressed the urgency of long-awaited legislation that would create a reformed regulator with new powers over auditors and company directors.

Richard Moriarty, chief executive of the Financial Reporting Council, was speaking in a podcast to mark one year his being in charge of the regulator, which awaits legislation announced in the King’s Speech.

He said the “core” expected elements of a new audit reform bill had “broad spread stakeholder support”.

But he stressed the need to push ahead with legislation. “I think it is important that we keep our eye on the prize to try and get this on the statute book and support the government and Parliament in getting it on the statute book as soon as possible.”

There is much anticipation of what may be contained in a new bill, though a draft has yet to be released and there is little indication of when one might appear.

Last week, a debate in the House of Lords saw a government spokesman reveal that the government still intends the bill to include powers for a new regulator to sanction company directors, likely audit committee members, who fail in their financial reporting duties and supervising audit work.

Lord Sonny Leong told fellow members of the Lords, during a short debate, that the bill would give a new watchdog “powers to investigate and sanction company directors for serious failure in meeting their existing duties and responsibilities relating to accounts, corporate reporting and audit”.

ARGA saga

A new regulator—the Audit, Reporting and Governance Authority (ARGA)—with beefed-up powers has been under discussion since publication of Sir John Kingman’s review in December 2018, which proposed its creation. That review had been prompted by the collapse of construction giant Carillion earlier that year.

The previous government pledged to introduce the reforms, but a bill never appeared. Some elements of proposed audit reforms were even cancelled, under pressure from City lobbying.

The current Labour government has pledged to push ahead with legislation. A bill could create a regulator, give it powers and potentially give some legal backing to audit committee standards that are already drafted.

Lord Leong also indicated that mandatory shared audit—audits split between a large and smaller firm—were still being considered for the bill.

In the podcast, Moriarty says a highlight of the past year was the publication of a revised version of the UK Corporate Governance Code, which introduced guidelines for reporting on internal controls. This fell short of expectations to many who called for internal controls reporting to be a statutory duty.

Moriarty says an effort was made to reassure companies that the ‘comply or explain’ principle underlying the code means “boards should feel empowered to explain where they have a cogent reason and they can transparently account for that”.

Moriarty also highlighted work by the FRC to push for higher audit standards.

“I am pleased that we have seen, particularly the Big Four, consistently over the last few years, improve their audit quality. But there are gaps starting to emerge between the Big Four and the rest of the market and that is something that we will need to look into.”