BEIS aims to ‘restore’ investor trust in audit and corporate governance
Audits could look at companies’ wider performance, including against key climate targets
A government consultation is seeking views on a series of proposals to reform the UK’s audit, corporate reporting and corporate governance system, in an effort to “restore trust” and “empower investors”.
In the consultation, Restoring trust in audit and corporate governance, launched 18 March, the Department for Business, Energy and Industrial Strategy (BEIS) set out a number of proposals to strengthen the UK’s audit framework in the wake of the collapse of several UK firms.
These include that companies should report on their governance and finances; reports should be audited; audits and the audit market should change; and that these should be overseen by a new regulator – the Audit, Reporting and Governance Authority.
Sir John Thompson, CEO of the Financial Reporting Council (FRC), welcomed the draft reforms and said it was a “significant milestone towards setting up a new, robust and independent regulator”.
The reforms set out to “restore investor and public confidence” in the way that large UK companies are run and scrutinised through the introduction of new reporting obligations around detecting and preventing fraud.
In addition, audits would be able to extend beyond a company’s financial results to look at their wider performance, including against key climate targets.
The proposals are in response to three independent reviews by Sir John Kingman, Sir Donald Brydon and the Competition and Markets Authority, which were commissioned by the government in 2018.
Business secretary Kwasi Kwarteng said: “When big companies go bust, the effects are felt far and wide with job losses and the British taxpayer picking up the tab.
“It’s clear from large-scale collapses like Thomas Cook, Carillion and BHS that Britain’s audit regime needs to be modernised with a package of sensible, proportionate reforms.”
Thompson added: “The FRC is already delivering on its commitment to transform, implementing reform across a variety of areas, where we are able to do so.
“This includes the operational separation of the Big Four audit practices, stronger and more timely enforcement and revisions to standards to drive higher quality work.”
BEIS has said it would particularly like to hear from investors, users of financial statements, shareholders and firms regulated by the FRC.Last Updated: 19 March 2021