Wednesday, July 17, 2024 4:02 p.m
Today it was revealed in the King’s Speech that the creation of a new audit watchdog has been delayed. Instead, the government said it would go full steam ahead with reforming the Financial Reporting Council (FRC) into the Audit, Reporting and Governance Authority (ARGA).
In addition, the Audit and Corporate Governance Reform Bill outlined other powers, including extending public interest entity (PIE) status to the largest private companies, ensuring high-quality audits of these businesses and early warning of financial problems.
City officials praised the steps.
Hywel Ball, EY’s UK Chairman, said: “EY has consistently pushed for a stronger regulatory body and enhanced director accountability,” commenting: “We are pleased to see audit and corporate governance reform back on the legislative agenda.”
Cath Burnet, Head of Audit, KPMG UK noted that “reforming the entire business ecosystem is important to strengthen trust and confidence in the financial reporting of UK businesses”.
Paul Stephenson, UK audit and assurance lead partner at Deloitte, agreed, saying the “incorporation of audit and corporate governance reform” today “is encouraging for our industry and UK business as a whole and must move forward at a rapid pace.” .
Ball also noted that “the UK’s attractiveness as an investment destination, international competitiveness and economic growth depend on the implementation of smart and considered regulation.
“The initial proposals were drawn up several years ago and will need to be updated to reflect the current UK market, so we look forward to further details as they are released,” added Ball.
While Andrew Moyser, head of audit and assurance at the MHA, added that the bill was “long overdue”, he added “given the importance of robust and intelligent audit services to help UK businesses stay strong and compliant”.
Burnet noted that in the meantime, KPMG “has adopted the operating department principles set out by the regulator and we continue to invest in our audit to ensure we remain focused on delivering sustainable audit quality”.
While Andy Hammond, head of audit at PwC UK, noted that audit firms have made “significant amounts of investment in improving quality” in recent years.
He went on to say that “we will continue to work constructively with all parties towards our shared goal of maintaining and strengthening corporate governance in the UK.
The government said the bill would create “a regime for overseeing the audit market, protecting against conflicts of interest in audit firms and building resilience so that quality auditing is available to all companies that need it.
David Herbinet, head of audit at Forvis Mazars, said: “Achieving the objectives of the Act will require a managed shared audit across the FTSE350. This is the only way we will build the resilience of the audit market.”
“After years of reform on the agenda, the four dominant firms still account for 98 per cent of audit fees in the FTSE350,” he explained.
“We cannot allow this to continue,” he added. “If one of them were to leave the market for any reason, many leading listed companies would likely be left without an auditor in the short term, which is unsustainable and would put the government in an impossible position,” Herbinet continued.
He pointed out that “managed shared audit will allow challenger firms to build their market position in a practical way over five to seven years to the benefit of all listed market entities.”