The accounting regulator is to be abolished and replaced by a new “enhanced” body following a damning review sparked by the collapses of high-profile companies such as Carillion and BHS.
The widely expected move comes after criticism of the Financial Reporting Council (FRC) in a review ordered by the government last year.
The FRC will be replaced by the Audit, Reporting and Governance Authority, which will have stronger powers and new leadership.
A review by Sir John Kingman highlighted a series of weaknesses in the “ramshackle” FRC – suggesting it was too cosy in the way it regulated auditors.
The government is now consulting on the Kingman review and said it intended to “move swiftly to implement these reforms and overhaul the sector”.
It said the new regulator would have powers to intervene directly and make changes to company accounts – instead of having to go to court – as well as the ability to regulate the biggest audit firms directly.
There will also be greater sanctions available in the event of corporate collapses, including powers to allow rapid explanations and in the most serious cases publish a report on them.
Sir John was asked to review the regulator after a series of corporate collapses brought the role of the audit sector – and in particular its “big four” firms KPMG, PwC, Deloitte and EY – into sharp focus and raised questions about how they are regulated.
KPMG has faced scrutiny for its oversight of Carillion, which went bust in January with debts of more than £5bn, while PwC came under the spotlight over its audit work at retailer BHS.
The government said having a “tough and robust regulator and an audit sector with the highest standards” was a key part of attracting investors, jobs and growth to the UK.
Business Secretary Greg Clark said: “This new body will build on our status as a great place to do business and will form an important part of strengthened public trust in businesses and the regulations that govern them.”
The government said it would shortly begin recruitment for a new chair and deputy chair for the FRC, who will then transfer to the new regulator.
FRC chairman Sir Win Bischoff said the regulator welcomed the recommendations and that he would hand over responsibilities as soon as his successor is put in place.
Britain’s accounting profession is wrestling with the implications of a series of regulatory reviews that will change the shape of the sector.
Late last year, the Competition and Markets Authority unveiled proposals to force a system of joint audits on large listed companies – an idea which has met fierce resistance from corporate Britain.
The audit sector is also being scrutinised in a separate review by London Stock Exchange chairman Sir Donald Brydon.
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