The Financial Reporting Council (FRC) should focus on its role as the UK’s audit watchdog and hand over corporate governance to a separate body, the influential Institute of Directors (IoD) has said.

The IoD is one of a number of organisations asked to submit evidence to the government’s review into the FRC’s future led by former Treasurer John Kingman in the wake of the collapse of outsourcer Carillion.

The role of the FRC as regulator to auditors has come under close scrutiny in the aftermath of Carillion’s failure. Some MPs want to break up the “oligarchy” of the so-called Big Four – KPMG, Deloitte, PwC and EY.

KPMG was singled out for particular criticism by MPs who accused it of being complicit in Carillion’s accounting judgements for “failing to exercise professional scepticism”.

Read more: After Carillion, breaking up the Big Four is not the answer

In its submission to the review, the IoD said that the FRC’s centralised decision-making structure was “not conducive to the differing regulatory approaches needed for governance and stewardship on the one hand, and statutory audit on the other”.

It warned against any mergers of its corporate governance functions into other regulatory bodies, such as the FCA, UKLA or a government department so that the “soft law” approach of the UK corporate governance code was not placed under the ambit of conventional regulators which typically adopt a more “legalistic” approach.

“If the codes were placed under the ambit of a conventional regulator, business would fear that this heralded a more legalistic approach which would undermine our much admired ‘comply or explain’ governance framework,” it said.

Rather, the UK should follow in the steps of Germany in setting up a self-standing corporate governance commission where accounting regulation would take place in a separate regulatory body.

“This would help the process of making changes to the UK corporate governance code become more transparent, with clearer lines of accountability, rather than being subsumed by a large regulator where corporate governance is just one concern amongst many.”

Yesterday the Chartered Institute of Internal Auditors also called for the remit of the watchdog to be narrowed, but differed from the IoD in stating the promotion of “high standards of corporate governance, transparency and accountability in public interest entities” should be the FRC’s suggested core function.

It suggested the FRC should be renamed as Regulator of Standards in Corporate Governance as part of its suggested renewed focus.

Read more: The auditing watchdog needs new powers to do its job properly

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