The possibility of swift progress on audit reform will be keenly watched as the Department for Business has already posted an update to guidance
Audit reform is now under the remit of the new secretary of state for business, Jonathan Reynolds, supported by ministers Douglas Alexander and Sarah Jones.
As government websites are being updated to reflect the new Labour government, a minor update to the guidance on audit and corporate governance reform on gov.uk has been posted, with the government stating that ‘reference to draft regulations amended as the government withdrew these on 16 October 2023’.
This information referred to the previous Conservative government’s decision to not include audit reform in the November 2023 King’s Speech.
Although long promised audit reform never got as far as draft legislation in the last parliament, with a July 2023 announcement referencing ‘a factual overview of draft regulations that the government laid in parliament on 19 July 2023’, it had been hoped that the legislation would make the statute books.
However, part of ambitious plans for audit reform were dropped as part of the Conservative government’s ambition to ‘remove additional reporting requirements’.
Draft regulations published last July would have added additional corporate and company reporting requirements to large UK listed and private companies, including an annual resilience statement, distributable profits figure, material fraud statement and triennial audit and assurance policy statement.
At the time the business minister Kevin Hollinrake indicated that reform would go ahead, stating: ‘The government remains committed to wider audit and corporate governance reform, including establishing a new Audit, Reporting and Governance Authority to replace the existing Financial Reporting Council. We will bring forward legislation to deliver these reforms when parliamentary time allows.’
Audit reform has been on the cards for nearly a decade following a string of audit disasters as failed companies such as Carilion, BHS, and scandals related to the audits of a host of companies including Rolls-Royce and Connaught Housing.
In 2018, there were three critical reviews of the audit market conducted by the Competition & Markets Authority (CMA), Sir John Kingman Review and Sir Donald Brydon’s Independent Review of the Quality and Effectiveness of Audit.
As early as 2012, the House of Lords Economic Affairs Committee produced a detailed report into audit market calling for radical reform of the audit sector.
ICAEW has called on the new Labour government to ‘commit to taking forward audit and corporate governance reform and legislate to clear the local audit backlog in England in its first 100 days in office’.
‘As a priority, the new government should enact the long-delayed reforms to the UK’s audit and corporate governance regime, including establishing the new statutory regulator ARGA and giving it powers to take effective enforcement action against directors of UK public interest entities.
‘Taking early action in this area will reduce the risk of unexpected business failure and deliver on existing commitments to reinforce the UK as a trusted destination for investment.’
The Department for Business & Trade has been contacted for comment.
Writes Sara White in Accountancy Daily