Draft Audit Reform and Corporate Governance
Bill
“Bills will be brought forward to strengthen audit and
corporate governance…”
- Investors and the public need access to truthful reporting
from our most important businesses on their finances and related
issues. This is critical for enabling trust in major companies
and to underpin growth.
- With this draft bill, a revamped regulator will uphold
standards and independent scrutiny of companies' accounts, as
well as accountability for company directors. Requiring better
transparency from large companies will help avoid company
failures and protect jobs, which is central to delivering a
secure economy.
- The Bill will also support long-term investment in UK
companies, reduce the harm that financial reporting errors can do
to businesses and communities up and down the country, and help
ensure quality audit for all businesses that need it.
What does the draft Bill do?
- Robust and rigorous scrutiny of large companies by auditors
and greater transparency around their finances is essential to
ensuring that investors, employees and consumers have an accurate
picture of the health of the company, which in turn delivers a
more secure economy.
- The draft bill will replace the Financial Reporting Council
with a new regulator – the Audit, Reporting and Governance
Authority – with the powers it needs to tackle bad financial
reporting and to build that trust.
- This statutory regulator will form a platform for other
important changes:
-
a wider remit, through extending Public
Interest Entity (PIE) status to the largest private companies
and thus making sure the audits of those important businesses
are high quality and giving early warning of financial
problems.
-
removing unnecessary rules on smaller Public Interest
Entities, making life easier for important smaller
businesses by cutting requirements that are disproportionate.
-
powers to investigate and sanction company directors
for serious failures in relation to their financial
reporting and audit responsibilities, so there are
consequences for putting forward dodgy accounts.
-
a regime to oversee the audit market,
protect against conflicts of interest at audit firms, and
build resilience so quality audit is available to all
companies that need it.
Territorial extent and application
- The draft Bill is expected to extend and apply UK-wide.
Key facts
- Tackling problems with audit and reporting will help minimise
the impacts of corporate failures. When companies fail, it
affects jobs and lives across the UK – like the 11,000 jobs lost
when BHS collapsed or Carillion's 30,000 unpaid subcontractors,
£1 billion of debt and at least a £500 million pension deficit.
More reliable audit information will inform lending and
investment decisions, ensuring that the best credit risks are
supported, not the worst.
- Currently, directors of a company making incorrect financial
statements can only be held accountable by the regulator if they
are members of an accountancy body. It is important that all
directors in the UK's most significant companies face
consequences if they neglect their duties in respect of financial
reporting, so the bill will allow for this.
- The Chartered Institute of Internal Auditors has said that
“This long-awaited legislation is vital to restoring trust in
audit and corporate governance. The need for audit reform
is now urgent. In recent years we have seen a series of
high-profile corporate collapses linked to audit and governance
weaknesses. This includes the collapse of Carillion in January
2018, which cost thousands of people their jobs, caused delays
for school and hospital building projects and cost taxpayers tens
of millions of pounds. More than five years on we are deeply
concerned about the pace of reform.”
