The first King’s Speech of Sir Kier Starmer’s new Labour Government has unveiled a number of legislative proposals set to significantly reshape the landscape for audit and corporate governance alongside pension investment. The Draft Audit Reform and Corporate Governance Bill takes centre stage in this respect. Several other measures also promise far-reaching implications for Corporate Finance and Corporate Governance.
Draft Audit Reform and Corporate Governance Bill
The Government’s official background briefing notes highlights the following key point about the draft bill:
“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 notes also state that the bill will promote long-term investment in UK companies, minimising the impact of financial reporting errors and ensuring quality audits. Read the full version here.
What we know about the draft bill
The draft bill will replace the Financial Reporting Council with a new regulator – the Audit, Reporting and Governance Authority (ARGA) – with the powers it needs to tackle bad financial reporting and to build trust.
ARGA will form a platform for other important changes:
- Extended remit: ARGA will extend Public Interest Entity (PIE) status to the largest private companies, ensuring high-quality audits and giving early warning of financial problems
- Simplified rules for smaller entities: the bill will remove unnecessary rules on smaller Public Interest Entities, making life easier for important smaller businesses by cutting requirements that are disproportionate
- Director accountability: ARGA will have the power 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
- Audit market oversight: the bill will establish 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.
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. The Government notes that 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 next step
If you have any enquiries regarding the above, please get in touch with Michael Fitch on m.fitch@uhy-uk.com or your usual UHY corporate finance adviser.
