The plan to replace the Financial Reporting Council (FRC) with a new statutory regulator, the Audit, Reporting and Governance Authority (ARGA), has been shelved. In a letter dated 19 January 2026 the government said it would not consult on the audit and corporate governance reform package, so ARGA is no longer expected to be created. The FRC carries on under the existing law, and the government says it still intends to put the FRC on a proper statutory footing when parliamentary time allows.

Where did the plan for a new regulator come from?

The reform programme grew out of a run of large company failures, most prominently Carillion, which collapsed in January 2018. Three independent reviews followed: Sir John Kingman’s review of the FRC, Sir Donald Brydon’s review of the quality and effectiveness of audit, and the Competition and Markets Authority’s study of the audit market. The government brought their recommendations together in a white paper, Restoring trust in audit and corporate governance, published on 18 March 2021.

The government response followed on 31 May 2022. It confirmed that the FRC would be replaced by ARGA, a statutory regulator with an overarching objective to protect and promote the interests of investors, other users of corporate reporting and the wider public interest. ARGA was to be funded by a mandatory levy on industry. On 17 July 2024 the King’s Speech announced a draft Audit Reform and Corporate Governance Bill that would replace the FRC with ARGA “with the powers it needs to tackle bad financial reporting”.

What would ARGA have done that the FRC cannot?

The 2022 response set the planned regime against the current one. The main differences are summarised below.

Area Current position What was planned
Status and funding The FRC has a mixture of statutory, voluntary and contractual functions, funded by levies that are partly voluntary A statutory regulator funded by a mandatory levy, able to direct companies to restate their accounts without going to court
Public interest entities (PIEs) Listed companies, banks and building societies, and insurers Also unlisted companies with over 750 employees and over £750 million annual turnover
Company directors The FRC cannot act against directors unless they are accountants Power to investigate and sanction directors of large companies for breaches of corporate reporting and audit duties
Other accountants Relies on voluntary arrangements with the professional bodies Statutory oversight of the professional bodies and power to sanction accountants in public interest cases
Audit market FTSE350 audits heavily concentrated in four firms FTSE350 companies to use a challenger firm for all or part of the audit, with a possible market share cap

Large PIEs would also have had to publish their distributable reserves, explain how they prevent and detect fraud, and say how they assure information in the annual report outside the financial statements.

What happened to the bill?

The draft bill was never published. In July 2025 the then minister told the Business and Trade Committee there would be no draft bill that session. On 19 January 2026 Blair McDougall, Minister for Small Businesses and Economic Transformation, wrote to the committee chair to say the government had reached “the difficult decision not to consult”. The letter was published on 20 January 2026.

He gave three reasons:

  1. The priority is growth and reducing administrative burdens; some of the reforms would increase costs on business and should not be prioritised over deregulatory measures.
  2. The need for major reform is less pressing, because audit regulation and audit quality have improved considerably since Carillion.
  3. Parliamentary time is limited, and the government did not want stakeholders to spend time on policies unlikely to progress soon.

The letter added that it remains important to have a regulator “that has the right legislative set up to do the job” and that the government will still look to put the FRC on a proper statutory footing. ICAEW reported in February 2026 that it was still waiting for detail on what that would mean in practice. The letter gave no timetable.

So who regulates audit now?

The FRC remains the competent authority for audit in the UK, a role given to it by the Statutory Auditors and Third Country Auditors Regulations 2016 (SI 2016/649). That status gives it authority to set the technical standards used in statutory audits, including the International Standards on Auditing (UK) and the Ethical Standard.

Much of the day to day work is delegated. The recognised supervisory bodies, such as ICAEW, register most audit firms and responsible individuals, monitor their audit work and investigate breaches. The FRC keeps the monitoring, investigation and sanctioning of PIE audits and the registration of firms and individuals that carry out PIE audits. It has also retained supervision of audits of companies quoted on AIM or the Aquis Stock Exchange with a market capitalisation above €200 million, and of Lloyd’s syndicates. For how firms and individuals qualify, see who can act as a registered auditor; for how cases against auditors are run, see the FRC enforcement procedure.

The FRC describes its own position as a mix: direct statutory powers over audit regulation, some powers delegated by the Secretary of State, and some functions with no statutory backing that rely on voluntary arrangements. Its funding comes from the audit profession, which must contribute under the Companies Act 2006, and from other groups by agreement with government. Its current priorities are set by a remit letter issued by the Secretary of State for Business and Trade in November 2023.

What does the decision mean for companies?

The most direct effect is on the definition of a PIE. The statutory definition in section 494A of the Companies Act 2006 still covers issuers with transferable securities admitted to trading on a UK regulated market, CRR credit institutions and insurance undertakings. Large private companies are not brought in, so a big unlisted group does not face the extra rules that apply to PIEs simply because of its size. Our guide to public interest entities covers those rules.

Directors who are not members of an accountancy body also remain outside FRC enforcement. They are still exposed under company law, for example under section 501 of the Companies Act 2006, which makes it an offence knowingly or recklessly to give an auditor misleading, false or deceptive information, but there is no new regulator able to fine them for poor reporting.

Some changes are going ahead without legislation. For companies that apply the UK Corporate Governance Code 2024, Provision 29 took effect from 1 January 2026. It requires the board to monitor and review the risk management and internal control framework and to include in the annual report a declaration of the effectiveness of material controls as at the balance sheet date. The FRC notes that companies are preparing to report under it in 2027. Separately, the government opened a consultation on modernising corporate reporting on 7 September 2026, closing on 30 November 2026, which proposes simplifying thresholds, exemptions and reporting requirements rather than adding to them.

What does it mean for auditors?

For audit firms the structure stays as it is: registration and monitoring through their recognised supervisory body, with PIE work directly under the FRC. The challenger firm requirement for FTSE350 audits and the operational separation of audit practices were planned ARGA powers and have not been legislated.

The FRC is still revising standards. In June 2026 it announced revised versions of ISA (UK) 700, ISA (UK) 701 and ISA (UK) 720, intended to make auditor’s reports shorter and less boilerplate. For companies that follow the Corporate Governance Code, auditors will have to describe how the company’s controls affected the audit and, where very serious control deficiencies are identified, communicate them in the auditor’s report. The revised ISA (UK) 700 is effective for audits of financial statements for periods commencing on or after 15 December 2026.

How might this play out for a large private company?

Illustration only. A UK private trading group has 900 employees and turnover of £800 million. It has no listed securities and is not a bank or insurer.

  • Under the 2022 plans it would have crossed both the 750 employee and £750 million turnover tests and become a PIE, bringing ARGA oversight of its reporting and audit, PIE audit rules and extra disclosures.
  • Under the current law it is not a PIE. Its audit is regulated through the auditor’s recognised supervisory body, unless the FRC has retained that class of audit, and the group does not need to publish distributable reserves or a fraud statement.
  • Its directors remain responsible for true and fair accounts under the Companies Act 2006, and its auditor still applies the ISAs (UK) in full. A large private company is not exempt from a statutory audit just because the reforms were dropped.

What are the common misunderstandings?

  • Treating ARGA as a body that exists. It was never created. Engagement letters, policies and training material that refer to ARGA should refer to the FRC.
  • Assuming nothing has changed. Provision 29 for Code companies and the revised auditor reporting standards are going ahead without the bill.
  • Assuming the 750 employee and £750 million tests apply. They were proposals only. PIE status still depends on section 494A.
  • Assuming the issue is closed. The government has said it intends to legislate to put the FRC on a statutory footing, and the corporate reporting consultation may change thresholds and exemptions. Watch for announcements from the FRC and the Department for Business and Trade.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.