Restoring trust in audit and corporate governance
Restoring trust in audit and corporate governance
Audit reform and a new corporate governance regime
The Department for Business, Energy and Industrial Strategy (BEIS) recently announced that it is pushing forward its plans for audit reform and improving corporate governance. You can find the latest news and developments on audit reform as well as background information and links to practical advice and relevant services.
The Government’s plans for audit and corporate governance reforms are based on the findings of several recent inquiries and reviews. These include the Kingman review of the FRC, Sir Donald Brydon’s review audit quality and effectiveness and the Competition and Markets Authority study of the audit market. These inquiries produced a total of 151 recommendations for improving audit and corporate governance that form the basis for the single set of proposed changes
Latest news on Audit reform and corporate governance
Government responds to “Restoring trust in Audit and corporate governance” consultation responses.
The Government has issued its response to the consultation document. More than 600 stakeholders took the opportunity to give their views on the initial consultation. The Government’s response outlines a way forward for audit and corporate governance reform through a mix of primary legislation and through the re-opening of the UK’s Corporate Governance Code.
You will find our summary of the Government’s response to key areas of the consultation below:
Webinar; Audit and Corporate Governance Reform with Sir Jon Thompson
This webinar, held on 10 June 2022, looks at the BEIS final response from the perspective of the company, the investment community, the Regulator and the audit firm and asks whether it meets the initial objectives of the government as well as the practical implications for those stakeholder groups.
The external speakers included Sir Jon Thompson, CEO of the Financial Reporting Council (FRC), Sangita Shah, Board member of the Quoted Companies Alliance, Paul Lee, member of the Brydon Advisory Committee and Head of Stewardship and Sustainable Investment at Redington. They were joined by Scott Knight, BDO, Head of Audit and Assurance and a member of the Brydon Advisory Committee and Matthew White, BDO’s Senior Partner chaired the session.
Our position on ‘Restoring trust in audit and corporate governance’
We welcome the government’s proposals and the opportunity to implement meaningful change. We believe the right and proportionate reforms will enhance the UK’s position as a world-class destination for investors. It is vital the UK Plc continues to be involved in the discussion on corporate governance and audit reform.
Questions and Answers
Can you tell me more about the initial BEIS consultation on restoring trust?
The BEIS consultation closed in July 2021. We responded to the consultation giving our position on the proposals.
You can find out more about the proposals and how they may affect you and your business by downloading our summary document. We have explained each of the 11 sections of the consultation.
When will the proposed reforms to audit and corporate governance come into force?
We expect that following the formation of ARGA, proposed for 2023, other measures will come into force in a phased manner. Though at the moment a timeline has yet to be decided.
Which companies will be affected by the proposed changes to audit?
The proposals expand the definition of Public Interest Entities (PIEs) which will bring into scope large privately owned companies as well as AIM listed businesses. The wide-ranging reforms look to increase accountability for directors, shareholders, audit firms and the regulator.
How will the proposals affect company directors?
Section two of the White Paper proposes increasing the accountability of directors. In the government’s latest announcement, the new regulator, ARGA will be able to investigate and sanction directors of large companies for breaches of duties around corporate reporting and audit. They will also consult on amending the Corporate Governance Code to increase transparency around bonus clawbacks.
Some questions that you may want to ask yourselves in relation to your existing controls framework
- Will the adequacy of existing controls allow the Directors to attest to their effectiveness for financial reporting? Are these auditable?
- Do you have existing controls frameworks and tools which can be leveraged?
- Do you have any projects or change programmes which may be impacted or require future proofing? Can you utilise existing systems to automate controls?
Is this a UK Sarbanes-Oxley?
The consultation proposes three options in relation to strengthening internal controls which, similarly to the US Sarbanes-Oxley regime explores director and audit firm attestation over internal controls. However, in the latest government proposals, it falls short of plans to have a UK Sarbanes-Oxley Act to make directors responsible for the effectiveness of their company’s internal controls.
Will there be a new, more powerful regulator?
Yes, the Government will establish new rules for ARGA. The Government has stated that the new regulator will be more proactive in identifying and taking action where there are matters of serious concern in relation to PIEs. The definition of PIEs has also been extended to larger unlisted companies with >750 employees and >£750m annual turnover. However, new powers to address serious concerns will be limited to the areas where the regulator has existing enforcement powers over corporate reporting and audit.
Will charities be affected by these reforms?
The proposed reforms will have some impact on charities and their governance.