The U.K. is getting a shiny new audit watchdog with heightened powers following a string of recent high-profile company failures. It is critical that this new body appoints a leadership eager to use the weapons in its armory.

On Monday, the government broadly accepted the recommendations of Legal & General Group Plc Chairman John Kingman’s review into the current supervisor, the Financial Reporting Council. Consultation is underway on the creation of its successor: the Audit, Reporting and Governance Authority.

It’s all in the name. The transition from a council to an authority denotes that the new body will have statutory powers and a clear mandate from parliament to uphold and constantly review corporate reporting standards. The scope will go beyond numbers to include governance – a welcome extension given leadership and incentives are a key risk to performance. Unlike the FRC, ARGA will be able to sanction directors regardless of whether they are accredited members of the accounting profession.

Depending on the outcome of the consultation, the new regulator could call on a company to cut its dividend, and invite shareholders to boot out management. The new remit includes promoting brevity and comprehensibility in accounts and annual reports – three cheers to that.

The reforms aren’t perfect. The definition of so-called public interest entities is to be reviewed, potentially broadening the range of companies whose audits require heightened supervision. This risks imposing an added burden on smaller, entrepreneurial companies. After the collapse of cafe chain Patisserie Valerie, some will say just as well. 

ARGA is nevertheless a step forward. Maybe it would have sufficed to just give the existing FRC new powers. But it makes sense to have a fresh start and fresh culture, even if the new body will be built on raw material from the existing regulator.

The success of the new regime will depend squarely on its own governance. There is no point to all this reform if ARGA’s leadership is overly cautious. Hopefully the search will pull out a rottweiler which barks early – and bites.

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Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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