Audit, Reporting and Governance Authority

Baroness Bowles of Berkhamsted Excerpts

Monday 31st March 2025 Lords Chamber

Asked by

[Baroness Bowles of Berkhamsted]

To ask His Majesty’s Government whether the legislation establishing the Audit, Reporting and Governance Authority will account for the principle of separation of powers regarding its standards-setting and enforcement functions by having independent committees for each area.

[Lord in Waiting/Government Whip (Lord Leong) (Lab)]

My Lords, as announced in the King’s Speech, the Government intend to publish the draft audit reform and corporate governance Bill in due course. The Government’s aim is to modernise the Financial Reporting Council’s framework for standard-setting and to uphold the principle of the separation of powers in the establishment of the audit, reporting and governance authority. It would not be appropriate to anticipate the contents of the Bill in advance of its publication. However, the Government agree with the noble Baroness, Lady Bowles, that transparency and due process should be at the forefront of standard-setting processes.

[Baroness Bowles of Berkhamsted (LD)]

I thank the Minister—I think that his answer was yes. The Takeover Panel had to separate itself as a result of the Human Rights Act 1998, and it is long overdue in the field of audit and accounting. Will it be clear in the legislation that the enforcement side should not rely on the same historic legal advice as the standards side on a “true and fair” view? The FRC has relied on controversial legacy legal opinions on a “true and fair” view that were obtained when the big four had significant sway over the FRC and elsewhere. We need to know that ARGA should mean the end of systemic vested interests, including benign vested interests and groupthink, and marking its own homework.

[Lord Leong (Lab)]

My Lords, the Financial Reporting Council has put in place transparent procedures which ensure a separation between decision-making on standards and enforcement. The draft Bill will continue the transition of the FRC into a revamped regulator—ARGA—with powers for the setting of standards, including on accounting, reporting and audit. Decisions to open an investigation under FRC enforcement schemes are taken by the Conduct Committee. Once an investigation has opened, case decisions are taken by the FRC executive council or its deputies based on the recommendation from the independent case examiner, which plays no part in standard-setting.