The accountancy watchdog is to be swept aside and replaced with an independent statutory regulator as part of a shake-up of the scandal-hit industry.
The Business Secretary Greg Clark has announced that the Financial Reporting Council (FRC) will be abolished and replaced with a new regulator called the Audit, Reporting and Governance Authority.
It follows a review led by Sir John Kingman, and the new body will have a new mandate, new leadership and "stronger statutory powers".
The authority will have "strategic direction" and duties to protect the interests of customers and the public by setting high standards of audit, corporate reporting and corporate governance.
Crucially, it will be able to hold companies and professional advisers to account and have greater sanctions available to it in cases of corporate failure.
These include new powers to require rapid explanations from companies and, in the most serious cases, publish a report about the company's conduct and management.
The shake-up comes as the role of the dominant big four accountancy giants, KPMG, Deloitte, PwC and EY, comes under intense scrutiny, sparked by the failures of Carillion and BHS, and the ensuing criticism of the firms charged with auditing their books.
Mr Clark said: "This new body will build on our status as a great place to do business and will form an important part of strengthened public trust in businesses and the regulations that govern them.
"Taken together with the CMA's market study and Sir Donald Brydon's review of audit quality and effectiveness, they will enable us to deliver a major set of reforms on the regulation of company audit, accounting and reporting".
The Audit, Reporting and Governance Authority will regulate the biggest audit firms directly and have a "diverse board" and strong leadership to change the culture and rebuild respect of those it regulates.
The Government published a consultation on Monday on implementing the reforms.
Separate reviews by the Competition and Markets Authority and Sir Donald Brydon into the quality and effectiveness of audit will also be taken into account.
The CMA has proposed that audits of the UK's biggest companies, listed on the FTSE 350, should be carried out by at least two firms, one of which should be from outside the big four of KPMG, Deloitte, PwC and EY.
The establishment of new leadership at the top of the FRC, which will transition into the Audit, Reporting and Governance Authority will begin with the recruitment for the chair and deputy chair shortly.
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