New government to push ahead with audit reform

Among the UK Labour government’s priorities for the economy is the push to bring forward a bill to strengthen audit and corporate governance. The sector has been battered by scandals including Carillion, BHS and Patisserie Valerie in recent years. However, plans to create a strong and strict regulator – the Audit, Reporting and Governance Authority – have been repeatedly pushed back in the past.

Chief executive, Richard Moriarty, of the current watchdog, The Financial Reporting Council (FRC), welcomed the government’s announcement of draft legislation to modernise supervision of the sector.

“The FRC has transformed in recent years into a more robust and effective regulator. But despite this progress, there are serious gaps in the regulatory toolkit that have long been identified as being in need of reform so we can act fully in the public interest and support growth and the abilities of companies to attract the capital they need,” said Moriarty.

“Without these changes we are the regulatory equivalent of being a sheriff for only half the county and with weaker powers than are needed,” he added.

Former FRC chair Keith Skeoch said he was “pleased to see it included and recognition that audit reform is not just a priority but an important part of the wider growth agenda. What’s really important is that FRC are given the statutory powers to ensure the transformation into ARGA (Audit, Reporting and Governance Authority) happens.”

ARGA will be the new regulatory body in the UK with the intention of replacing the FRC. It will oversee the audit market to protect against conflict of interest at audit firms, establish a local audit system and have the power to investigate and sanction company directors for serious failures in their financial reporting and audit responsibilities. The chief executive of professional body the Institute of Chartered Accountants in England and Wales, Alan Vallance, also welcomed the announcement.

“More than six years on from the collapse of Carillion, we are delighted that the new government has named legislation to reform corporate governance and audit as one of its priorities for the next parliament, he said.

“Reliable, trusted reporting by companies is fundamental to investor confidence which in turn is key to economic growth and stability. This long awaited reform will not only reduce the risk of disorderly business failure, but will contribute to the transition to net zero,” he added.

Labour had pledged to put economic growth “at the heart of its legislative agenda” and “take the brakes off Britain” when the King’s speech, in July, set out its platform of new laws. Outlining Labour’s upcoming legislative plans, King Charles had said the government “will seek a new partnership with both business and working people and help the country move on from the recent cost of living challenges by prioritising wealth creation for all communities.”

More than 35 bills were being worked on for potential inclusion, the government had said back in July, spanning issues including energy, planning and fiscal rules.

Other topics announced at that time include a bill on workers’ rights and reforms to the House of Lords. An expected bill on AI regulation did not make the cut but the King said in the speech that the government would establish “appropriate legislation”.

Labour has already pushed through its legislation for a national wealth fund to drive investment into the United Kingdom. While reports have suggested some top private equity dealmakers are eyeing a move to locations such as Milan amid Labour’s plans to hike taxes on the sector, other business leaders have rallied around the party and its promise to bring more stability to the UK economy.