Gordon Macleod on ARGA’s Role in Corporate Governance Reform

In 2024, the UK’s Labour government renewed its commitment to strengthen corporate governance by transitioning the Financial Reporting Council (FRC) into the Auditing, Reporting and Governance Authority (ARGA). In a piece by the Institute of Financial Accountants, FRA Partner Gordon Macleod has been quoted discussing the implications of this reform for governance and audit (see extract below).  

The article highlights that “ARGA will have the power to investigate and, if necessary, sanction all directors in breach of their responsibilities – not only those with direct oversight of the financial”. Macleod said that “Directors will no longer be able to escape investigation and sanction if they are not a member of a professional body and lack of knowledge will not be a defence.”

Read the full article here.

Renewed momentum behind reform

For Gordon Macleod, Partner at Forensic Risk Alliance, the draft Bill heralds renewed momentum behind governance and audit reform.

ARGA will have powers to investigate and sanction directors for neglecting their responsibilities, presenting inaccurate accounts or submitting misleading financial statements. These measures are designed to ensure that there are tangible repercussions for directors, deterring misconduct and promoting greater transparency.

Macleod explains: “High-profile collapses such as Carillion, BHS and Patisserie Valerie dented the public’s trust in corporate governance in companies and the reliability of audits and the FRC limited powers meant that it was unable to investigate all the accounting malpractices that came to light in recent years.”

When enacted into law, ARGA will have statutory powers of investigation and enforcement, addressing serious weaknesses identified in the Kingman review. However, adds Macleod, the likely increase in investigations and enforcement activity will take time as the FRC transitions to ARGA and starts to use its new and expanded powers.

“Even once the transition is complete, it remains to be seen whether ARGA will be given sufficient resources to significantly expand the number of investigations of companies, directors, and auditors.”