Exclusion of audit reform from King’s Speech ‘very disappointing’, says ICAEW

The ICAEW has called the exclusion of an audit and corporate governance reform bill from the King’s Speech “very disappointing”. 

The accountancy body warned that there was “no realistic prospect” that legislation for audit reform will now happen before the next election.

It added that the promise of comprehensive reform has remained “unfulfilled due to a lack of political will”.

Commenting on the speech which took place yesterday (7 November), Michael Izza, ICAEW CEO, said: “Carillion’s collapse almost six years ago marked a watershed moment for UK audit and corporate governance, but it appears that the government’s promise of comprehensive reform will remain unfulfilled due to a lack of political will.

“It is very disappointing that the audit and corporate governance bill is missing from the King’s Speech, leaving us with no realistic prospect that this key piece of primary legislation will happen before the next election.”

He added: “This comes hard on the heels of the government’s surprise decision last month to scrap new draft reporting regulations which the regulator and the accountancy profession had been working on for years.

“The attractiveness of the UK as a place to invest and do business is firmly based on the high quality of corporate transparency, governance, reporting and audit in this country. The government’s faint-hearted attitude to protecting and maintaining that reputation does the economy no favours.”

The reforms, which were first announced last year, reportedly aim to bring “transparency and accountability” for businesses, investors, accountants and auditors. 

They include the establishment of a new corporate reporting and audit regulator, increasing accountability for big business and “addressing the dominance of the Big Four audit firms”.

As part of the reforms, the government said that the Financial Reporting Council would be replaced by the Audit, Reporting and Governance Authority (ARGA), which would have tougher enforcement powers and be funded by a levy on industry.

Meanwhile, directors at the biggest companies would face sanctions such as fines if they breach their legal duties to be open with auditors or lie about the state of their firm’s finances. The government also said it will act to address “rewards for failure” when it comes to director bonuses.

In addition, under the reform large businesses would be required to provide more information to investors and the public about fraud prevention measures, risks and what metrics are independently checked.

Meanwhile, FTSE350 companies would also have to conduct part of their audit using a smaller challenger firm, while ARGA would have the power to force big audit firms to separate their audit and non-audit functions and to enforce a market cap “if the state of the market doesn’t improve”.