In a sweeping range of measures, the white paper ordered after the collapses of Carillion, Patisserie Valerie and BHS, the government is proposing a new regulator to oversee the work of auditors and reduce the dominance of the Big Four accounting firms, KPMG, Deloitte, PwC and EY.
The White Paper suggests a scheme where all listed companies will be mandated to claw back bonuses and share awards from executive directors if they fail to protect customers’ and employers’ interests, The Times reported.
It would apply for at least two years after the reward was made.
On dividends, companies would have to make a formal statement about the legality and affordability of payments in a move clearly inspired by Carillion’s payments of dividends months before reporting outlandish losses.
A new accounting regulator would replace the Financial Reporting Council funded by a levy on firms, while a new definition of “public interest entitities” would be expanded to include large companies not on the stock market. This would have captured privately owned BHS.
Companies would have to hire a smaller audit firm to look at parts of its accounts alongside a Big Four firm.
The Financial Times said directors would have to take far more responsibility for the accuracy of company accounts in an overhaul similar to the US Sarbanes-Oxley legislation passed after the Enron scandal.
The White Paper goes out to consultation until July and also includes new requirements on companies to detect and prevent fraud.
The paper is effectively an implementation of three audit profession reports, from Sir John Kingman, Sir Donald Brydon and the UK competition regulator.