UK Government Delays Audit and Corporate Governance Reforms: What's Next?

The UK government is facing another delay in implementing its long-awaited overhaul of the country's audit and corporate governance systems. This move could significantly impact the timeline for these reforms, pushing them beyond the next general election. Let's delve into the details of this delay and what it means for the UK's financial landscape.

Background

The government's commitment to revamping audit and corporate governance was triggered by high-profile scandals involving companies like BHS in 2016 and Carillion in 2018. In response, ministers vowed to enact legislation to address these issues. Central to the proposed changes was the replacement of the

Financial Reporting Council (FRC) with a more robust regulatory body named the Audit, Reporting, and Governance Authority. Additionally, around 600 private companies were slated to be reclassified as "public interest entities," subjecting them to stricter regulations.

The Delay

Despite earlier promises, it now appears that the upcoming King's Speech, outlining the government's legislative agenda for 2023-24, may not include the much-anticipated reforms. This omission implies that the reforms are unlikely to be implemented until after the next general election.

According to an insider, "wholesale reform" might not make it onto the government's legislative agenda, but some reforms could still be implemented using secondary legislation. The delay is largely attributed to the perennial issue of parliamentary time.

Officials at the Department for Business and Trade, responsible for overseeing these reforms, have hinted that the overhaul isn't currently a political priority. However, this stance could change in the future.

Implications

The uncertainty surrounding these reforms has left many concerned about the continued effectiveness of the current regulatory landscape. The FRC, which had expanded significantly in the past four years, is now planning for the possibility that the enhanced regulatory body may not be operational until 2026 or 2027.

Without the proposed legislation, the FRC is unable to take on a more substantial role in supervising company directors or implement measures to increase competition among major auditing firms, such as Deloitte, EY, KPMG, and PwC.

Government's Response

In response to these concerns, a government spokesperson affirmed the government's commitment to improving audit and corporate governance in the UK. Reforms are already underway, with the Financial Reporting Council undergoing transformation and consulting on changes to the corporate governance code. The government maintains that it possesses the necessary powers to ban subpar auditors from reviewing large companies' accounts.

Conclusion

The delay in implementing the much-anticipated audit and corporate governance reforms in the UK raises questions about the timeline and effectiveness of these changes. While the government reassures stakeholders of its commitment to these reforms, the lack of concrete legislative action remains a point of contention. The financial landscape in the UK may continue to evolve as stakeholders eagerly await further developments in this critical area