The UK’s chief financial reporting watchdog says it is better to introduce audit reform before there is another big audit scandal that triggers a call for change.

Richard Moriarty, chief executive of the Financial Reporting Council, was discussing proposals giving the regulator new powers that have been in the pipeline since the collapse of Carillion in 2018.

Moriarty said: “I will keep on making the case for audit reform. It is always so much better to do such reform during what I call ‘peacetime’, and not on the back of potentially a failure or a scandal, where political response says something must be done.

“And given the thinking that’s gone into audit reform over the years, I would wish to avoid it only becoming a parliamentary priority on the back of something going wrong.”

Carillion prompted a slew of government-ordered reviews, the most significant being the Kingman Review in December 2018 which proposed a raft of changes.

Chief among them were the replacement of the FRC with a new body—the audit, reporting and governance authority (ARGA)—and new powers.

Stronger powers

Kingman proposed that ARGA might have stronger powers including more leeway to demand documents without court orders and even a right to recommend to shareholders that key managers or even non-executives be removed.

There were also proposals for ARGA to develop an enforcement regime that would allow the watchdog to sanction directors and auditors for failing in their duties.

A white paper followed in 2021 listing many changes but, since then, there has been no sign of the legislation needed to introduce them.

An audit reform bill was listed in the King’s Speech in 2024. However, government has not made the reforms a priority, despite calls from experts.

Last week, a written statement published in Hansard revealed government would not act to bring forward a bill in the current session of Parliament.

Blair McDougall, a minister at the department for business, said: “Priority is being given to measures that reduce administrative costs for business, including through the department’s work on modernising corporate reporting.”

Speaking to the Following the Rules podcast, Moriarty acknowledged that audit reform may not be top of the government’s work list but said the regulator had been working to modernise nonetheless, with reviews of the UK’s corporate governance and stewardship codes.

He said the FRC had also found “new ways” to regulate audit firms.

“We look not just at inspection of audit files, but increasingly we are turning our attention to systems of quality management and assurance within the firms, so not just doing spear fishing of particular files that may be high-risk, but going beyond that to hold the firm to account.”