Ministers criticised after dropping audit reform bill – Daily Business

The UK government has been urged to rethink its decision to abandon long-anticipated reform of the audit profession.

Change has been demanded since the collapse of civil engineering firm Carillion in 2018 followed by other high profile failures which raised questions about why difficulties in these companies were not spotted earlier by auditors.

A number of audit firms were investigated and paid heavy penalties.

But plans to introduce a new regulator to replace the Financial Reporting Council have now been dropped after Labour ministers decided the issue was “less pressing than it was” and that “parliamentary time is limited”.

Minister for Small Business and Economic Transformation, Blair McDougall, wrote to the chair of the Business and Trade Committee to inform him that the Government will not be consulting on audit reform legislation.

He said that while the planned reforms would be beneficial, some would increase costs on
business, and “it would not be right to prioritise those over more deregulatory measures”.

Gail Boag, chief executive of the Institute of Chartered Accounants Scotland (ICAS), said the decision to scrap the Bill was “deeply frustrating”.

She added: “The whole accountancy sector and even governments themselves have agreed for years on the need for audit and corporate governance reform.

“There was recognition that better corporate governance could not only support investor confidence and therefore business growth, but also that more must be done to protect the wider impacts of corporate collapse on the public.

“Failures such as Carillion, BHS, Patisserie Valerie and others saw job losses and pensions massively reduced in value, demonstrating why this bill is much needed. 

“There is no doubt that recent improvements and work across the sector and by the FRC have moved us on from where we were, and that the quality of audit and of corporate governance has improved.

“However, the issue of director accountability remains far from resolved, and there is an urgent need to clarify the scope of the FRC’s role and powers.”

Maggie McGhee,  executive director – strategy and governance at ACCA (Association of Chartered Certified Accountants), said: “Legislation to establish the Audit, Reporting and Governance Authority (ARGA) should  have proceeded without delay. Over the years ACCA has been consistent in that.

“Establishing ARGA would have  given businesses certainty and ensured the UK maintains its reputation for the highest standards of corporate governance. 

‘We cannot hide our disappointment and our disagreement with this decision which we thinks makes no sense. The time to reform and strengthen corporate governance is when we are in relatively good place, not when are in the midst of a corporate governance and audit failure crisis.

“So we disagree completely with the idea that the need for reform is less pressing. Businesses do not grow where corporate governance is below par. 

“We will work with other stakeholders and the government to see that the FRC works as well as possible. The first step is for the government to do what it has said and put the FRC on a proper statutory footing. Please stop the delay now.”

In his letter, the minister said that “the need for major reform is less pressing than it was”, because “a great deal of progress has been made since the collapse of Carillion in 2018.

“We have seen considerable improvement in the quality of audit regulation, and of audit itself, and I am committed to continued support of the measures taken by the Financial Reporting Council and the audit sector to achieve these improvements.

“The Government is pursuing an ambitious legislative programme and parliamentary time is limited. We respect the time and resources of our stakeholders and therefore do not want to consult to seek further input on policies that are not likely to progress in the near future.”