ARGA’s proposed regulatory powers

A) ARGA to have increased powers with respect to the annual report

1) ARGA to have powers to review the whole of the annual report

• as proposed in the White Paper, the regulator’s powers will be strengthened and widened including by extending the regulator’s corporate reporting review powers to the entire annual report including voluntary elements.
• the regulator will also be given the power to require or commission an expert review. Similar to ‘s166 reviews’ in financial services

2) ARGA not have the power to offer pre-clearance of proposed accounting treatments

• the proposal in the White Paper that the regulator would be given the power to offer pre-clearance in respect of proposed accounting treatments has been dropped

B) ARGA to have direct responsibility for PIE auditor registration and to seek to publish more on AQR findings  

1) ARGA to take over approval and registration of statutory auditors of PIEs

• the new Ministerial Direction which will come into effect on 31 July 2022 will enable the regulator to move forward with reclaiming the function of determining the eligibility criteria for the approval of statutory auditors of PIEs
• firms acting as statutory auditors of PIEs, and partners within them signing PIE audit reports, will need in future to be registered directly with the regulator rather than with a Recognised Supervisory Body (RSB)

2) ARGA to seek to publish more on AQR findings

• ARGA will be equipped with general broader powers and functions that allow it to publish the information necessary in relation to Audit Quality Reviews (AQRs) on individual company audits
• the Government considers that measures to enhance the information published on AQR findings should focus on ensuring the publication of more useful information for investors and other users of audited financial information
• the FRC plans to enhance its engagement with audit committee chairs on AQR findings and will revise and strengthen its current guidance for audit committees regarding reporting on AQR findings
• rather than legislating specifically for the publication of AQR responses by the regulator, FRC will look at non-legislative ways of improving the AQR process and continuing to seek consent from audit firms and audited entities where possible before publication
• the Government is also asking the regulator to engage with investors and other users to improve the usefulness to them of the information published on AQRs

C) Mandatory scope of audit not to be extended

1) Market to shape the development of enhanced wider assurance services

• the Government has indicated it will leave the market – companies, directors, investors – to shape the development of an enhanced wider assurance services market in the coming years, stimulated by the requirement to publish an Audit and Assurance Policy

 2) Regulator not to have oversight of ‘corporate audit’

• as the corporate audit proposals have been dropped, the Government has indicated that it does not intend to legislate to give the regulator oversight of ‘corporate audit’

D) New enforcement regime for accountants 

1) New enforcement regime to extend beyond chartered bodies

• there will be a proposed enforcement regime for accountants which will now apply to members of all relevant professional bodies, not just chartered bodies
• the regime will now be limited to cases that relate to corporate reporting (principally by PIEs) and which give rise to public interest concerns
• ARGA will use the IESBA International Code of Ethics for Professional Accountants as the basis for enforcement action rather than developing its own code as previously proposed

E) ARGA to regulate PIE actuarial work

1) ARGA to regulate public interest actuarial work

• ARGA will regulate public interest actuarial work as these activities have the most significant adverse consequences if not carried out, and completed, to an appropriate standard.

2) ARGA’s role in relation to actuarial standards

• ARGA will set standards for technical actuarial work
• ARGA will not set ethical standards for actuaries which will continue to be set by the IFoA. However, ARGA may require individuals undertaking public interest actuarial work to comply with the IFoA’s ethical standards

3) ARGA’s actuarial regulation focuses on individuals

• the Government does not propose to establish a system to regulate actuarial work or entities directly. The regulatory regime will be focused on individuals. ARGA’s regulatory responsibilities will extend to all individuals that undertake actuarial work in the public interest

4) ARGA to have powers to gain access to information on PIE actuarial work

• ARGA will be empowered to request that individuals undertaking public interest actuarial work provide timely access to their work in response to a formal request, and to compel them to do so if necessary. ARGA will have statutory powers to use, in extreme circumstances, to request a court order to compel the provision of work for monitoring in cases in which an individual does not comply with the initial request, consistent with its powers under the regulatory regime for audit

5) ARGA to have the power to levy a range of sanctions in relation to PIE actuarial work

• ARGA will have a statutory power to take action against the individuals responsible for breaches of technical actuarial standards when public interest actuarial work is carried out by, or for, PIEs, large pension schemes or large funeral trusts
• consistent with ARGA’s ability to require individuals carrying out public interest actuarial work to comply with the IFoA’s ethical standards, ARGA may also take action against the individuals responsible for breaches of ethical standards
• ARGA will have the statutory power to compel the disclosure of the information that it needs for public interest monitoring or disciplinary investigations. A graduated set of actions will be available to ARGA including, but not limited to, recommending remedial action, including correction of publicly available information if the work output is public; making public declarations about non-compliance; reporting to the IFoA and, in appropriate cases, taking enforcement action under the independent disciplinary regime which may include the levying of fines