New audit watchdog chair pledges tougher rules for company executives
The new chair of the UK’s audit watchdog has vowed to make company directors accountable for corporate accounting scandals, in his first public speech as head of the Financial Reporting Council (FRC).
FRC chair Sir Jan du Plessis said the government’s decision to water down plans for a British version of the USA’s “Sarbanes-Oxley Act” – which mandates that senior executives take individual responsibility for the accuracy of financial records – was a “missed opportunity.”
The South African born businessman instead said the FRC will seek to hold company directors accountable itself.
The comments come after the government rolled back plans for a UK version of the Sarbanes-Oxley act, to mandate that company execs sign off on financial reports. The watering down came after lawmakers faced pushback from businesses.
Speaking at a City & Financial summit, du Plessis said it “misses the point” to put “all the onus” for accounting scandals on the audit profession”.
The ex-BT and Rio Tinto exec said the FRC will set out plans to as to how reforms – in the mould of the US Sarbanes-Oxley act – could be put in place without legislation.
“It won’t be Sarbanes-Oxley but it is the same idea,” du Plessis said.
The plans follow a series of major accounting scandals involving some of the UK’s major companies, including Carillion, BHS, and Patisserie Valerie.
Climate risk
The FRC chair’s comments came after the audit watchdog set out plans to force actuaries to account for climate and other ESG risks, when carrying out their risk modelling work.
The UK’s Financial Reporting Council (FRC) said it is considering plans to force actuaries to consider climate risks, to “ensure actuarial work remains fit for purpose” in a rapidly changing world.
The regulator’s plans come after an FRC consultations showed that “in many significant areas of traditional actuarial work, there is limited consideration of climate risk”.
The audit watchdog said that looking forwards, actuaries are set to play an increasingly important role in modelling climate change, pandemics, and other risks.
Kate Levick, associate director of sustainable finance at climate think-tank E3G, said the plans align with the government’s intentions to make London “a net-zero financial centre”.
Atul Shah, an accounting expert at City University, said the rules are an “indirect way of forcing business to take climate seriously.”
Janine Alexander, a partner at London law firm Collyer Bristow, said the rules come as “part of an increasing push by regulators in all industries to ensure there is a focus on ESG”.
The law firm partner said the scrutiny over climate risks will be increasingly important going forwards, as major listed companies face the threat of both “regulatory and litigation risk” on issues around ESG.