Draft Audit Reform
Bill
The purpose of the draft Bill is to:
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● Rebuild trust in the UK’s audit, corporate reporting
and corporate governance system and the insolvency regulatory
framework.
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● Ensure accountability for those with key roles in
that system.
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● Increase resilience and choice in the statutory audit
market – reinforcing the UK’s reputation as a world-leading
destination for investment.
The main benefits of the draft Bill would be:
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● Strengthening the UK’s position as a global leader in
corporate governance by improving confidence in the UK
market, better protecting jobs and investments, and reducing
the cost of capital for well-run companies.
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● Improving protection for the UK against risks to
jobs, pensions, and suppliers from unexpected company
collapses, by improving scrutiny of the largest non- listed
companies and strengthening the insolvency framework to
increase confidence in the system.
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● Increasing competition in the audit market by
supporting the growth of challenger firms to reduce the
dominance of the largest audit firms, giving businesses
greater choice and making the market more resilient.
The main elements of the draft Bill are:
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● Establishing a new statutory regulator, the Audit,
Reporting and Governance Authority, that will protect and
promote the interests of investors, other users of corporate
reporting and the wider public interest.
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● Providing new measures to open up the market,
including a new approach of managed shared audit in which
challenger firms undertake a share of the work on large-scale
audits. This will improve the quality and usefulness of
audit; and boost resilience, competition, and choice in the
audit market.
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● Bringing the largest private companies in scope of
regulation in the definition of ‘public interest entities’,
recognising the public interest in companies of this size.
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● Giving the new regulator effective powers to enforce
directors’ financial reporting duties, to supervise corporate
reporting, and to oversee and regulate the accountancy and
actuarial professions.
● Reforming the regulation of Insolvency Practitioners to give
greater confidence to creditors and strengthening corporate
governance of firms in or approaching insolvency so that ‘asset
stripping’ can be more effectively tackled.
Territorial extent and application
● The draft Bill will extend and apply across the UK.
Key facts
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● In 2021 the Financial Reporting Council found that
nearly a third of the major company audits that it inspected
required improvement.
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● There has been consolidation in the audit sector in
the last 30 years, falling from eight to four major audit
firms. In 2020, every company in the FTSE 100 and 91 per cent
of the FTSE 250 were audited by one of the four largest audit
firms.
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● Three independent reviews undertaken by Sir John
Kingman, Sir Donald Brydon and the Competition and Markets
Authority made recommendations to the Government on audit and
corporate reporting. Many of their recommendations require
primary legislation and will be taken forward in this Bill.
The Government’s response to the consultation on its White
Paper, Restoring trust in audit and corporate governance,
will be published shortly.
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● Previous corporate collapses have had a significant
impact on individuals and the economy:
o 9,000 redundancies were made, 555 retail stores closed and
1,286 companies and government entities owed money following the
collapse of Thomas Cook;
o 11,000 jobs put at risk by the collapse of BHS; and
o 7,000 suppliers and contractors impacted by the collapse of
Carillion.
