Get ready for the Audit Reform and Corporate Governance Bill
2nd August 2024

Amid the sheer scale of legislation included in the recent King’s Speech, with some 40 bills included in plans for the parliamentary term, it is perhaps not surprising that there has not been much noise about legislative proposals which are set to significantly bolster the pivotal role of corporate governance.
At the heart of the proposed transformation is the Draft Audit Reform and Corporate Governance Bill, which aims to address longstanding concerns about audit quality and damaging corporate failures through a number of new initiatives.
First of all, the Audit, Reporting and Governance Authority (ARGA) will replace the Financial Reporting Council (FRC), with expanded powers to investigate and sanction directors. Meanwhile, Public Interest Entity (PIE) status will be extended to large private companies, subjecting them to more rigorous audit requirements.
The government also wants to introduce a new regime to oversee the audit market, protect against conflicts of interest, and build resilience, while removing any rules deemed unnecessary on smaller PIEs to lighten the regulatory load.
The bill aims to support long-term investment in UK companies while reducing the harm that financial reporting errors can do to businesses and communities.
FRC to become ARGA
Notably, the shift of the FRC to ARGA as an independent watchdog should strengthen the oversight of audit quality so that audit firms can be held properly to account, avoiding the scandal that engulfed, for example, the collapse of Carillion in 2018.
The FRC has responded warmly to the draft proposals and FRC CEO Richard Moriarty said: “This positive direction of travel recognises our important role in supporting the UK’s reputation for good corporate governance, financial reporting, and audit. Our work underpins domestic and international investor confidence, resulting in businesses being more readily able to access the capital they need to grow and create jobs and wealth in every community across the UK.
“We will work with the Department of Business and Trade as it brings forward this draft legislation while continuing to use our existing powers to deliver good standards of corporate governance, financial reporting and audit and fulfilling our remit to support growth across the UK.”
Fiscal transparency and economic policy
There are a number of other proposals that may impact corporate governance, notably The Budget Responsibility Bill. This is intended to introduce another layer of scrutiny to fiscal policy and, by mandating independent assessment of significant tax and spending changes by the Office for Budget Responsibility, to reinforce market credibility and public trust by preventing companies implementing large-scale, unfunded commitments.
This new requirement for independent assessment could impact how businesses approach tax planning and financial forecasting and may require boards to rethink some of their modelling and anticipate the potential outcomes of such assessments.
New role for corporate governance
As these reforms take shape, corporate governance professionals and company secretaries will need to ensure that they keep up-to-date with legislative changes and their implementation timelines, enhancing their skills in areas like data analytics, ESG reporting and sector-specific requirements.
Because there is likely to be increased scrutiny and potentially higher standards in auditing in order to prevent major corporate collapses, clients will need help and guidance in understanding these new regulatory environments and their new roles and responsibilities in reporting their financial status.
In outlining its proposals, the government has emphasised that these changes are targeting the financial sustainability of companies and reducing the likelihood of costly financial failures. For governance professionals, this is likely to mean a growing role in ensuring corporate compliance and providing strategic advice in shaping the implementation and execution around these policies to ensure a financially fitter and more transparent UK PLC.
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