The head of Britain’s accounting watchdog is to quit next year amid strong criticism of the regulator following the collapse of Carillion.
Stephen Haddrill will depart after nine years in charge of the Financial Reporting Council, which is subject to multiple inquiries into its effectiveness and independence.
In May, a committee of MPs described the FRC as “chronically passive” in an excoriating report into the construction group’s failure, condemning the regulator as “too timid to make effective use of the powers they have”.
Haddrill’s departure is likely to hasten an overhaul of the FRC and may even presage its abolition. In an unprecedented move in June, the Treasury commissioned Sir John Kingman, the chairman of Legal & General, to conduct a review of the regulator to make it “fit for the future”, which may recommend its abolition or merger with the Financial Conduct Authority.
The exact timing of Haddrill’s leaving will depend on the outcome of the Kingman review and the search for his successor.
In a statement, Haddrill said: “I am incredibly proud to have led the FRC for nearly nine years. However, I believe that it should be the job of a new CEO to lead the FRC when the way ahead is decided. In the meantime, I remain fully committed to taking forward the FRC’s important programmes on audit reform, investor stewardship, corporate reporting and preparing the FRC for EU exit.”
Speculation about Haddrill’s successor has focused on Sacha Romanovitch, who recently left as chief executive of Grant Thornton, the UK’s fifth-biggest accountancy firm.
Whoever takes over at the FRC or its successor faces a regulator and industry in crisis. Early responses to the Kingman review, published in August, highlighted widespread concerns that the FRC was too close to the industry it supervises and unwilling to issue serious penalties following wrongdoing in the sector.
The UK Shareholders’ Association and ShareSoc, the society of individual shareholders, said in their submission that the FRC “gives the impression of being an organisation which, up to now, has been happy to accept the status quo.”
It added: “Looking at the FRC’s board and the background and interests of its members, one has to suspect that promoting change has not been high on the agenda … There are real concerns about regulatory capture at the FRC. Too many people at all levels in the organisation are perceived to be too closely associated with those the FRC is supposed to regulate.”
A shake-up at the FRC will intensify the pressure on the accountancy industry and the dominance of the the big four accountancy groups – KPMG, Deloitte, PricewaterhouseCoopers and EY – in auditing Britain’s biggest companies.
Haddrill was behind calls for an investigation into whether the big four should have to spin off their UK audit arms into separate businesses. The big firms could also be banned from earning lucrative consultancy fees at businesses they audit.
The FRC has admitted there is an “underlying falling trust in business and the effectiveness of audit”.
In October, it rebuked KPMG, the auditor of Carillion. The FRC said it found “a deterioration in the quality of the audits that we inspected to an unacceptable level”. KPMG earned about £1.5m a year vouching for Carillion’s accounts.
Reacting to the FRC report last month, Michelle Hinchliffe, the UK head of audit at KPMG, said: “We are taking action to address these results. We are investing heavily in our audit business to ensure the highest standards of consistency and rigour are applied across all aspects of our work.”
Fines issued against auditing firms have gradually risen, although the FRC has persistently been seen as less dynamic than the FCA. In June, it fined PwC £6.5m after the collapse of BHS and handed a 15-year ban to the senior accountant at the firm who audited the department store chain’s accounts.