The embattled UK government has been called upon to maintain its commitment to audit reform and to legislate for a strengthened internal controls regime.
The call comes from the Institute of Internal Auditors (IIA) in letters written to the prime minister, Liz Truss; the chancellor, Kwasi Kwarteng; and the secretary of state for business, Jacob Rees-Mogg (pictured).
Reform of audit has been discussed since the collapse of Carillion in January 2018. More than four years on, and even after publication of a white paper, few of the proposals are yet to come into effect.
There was some optimism when an Audit Reform Bill was listed during the Queen’s Speech earlier this year, but there was disappointment about its contents.
Uncertain times
The IIA wants to see reform back on course with a timetable declared and internal controls top of the agenda. The current geopolitical and domestic uncertainty only makes audit reform more urgent.
“In fact we would contend that these crises have increased the importance of audit and corporate governance reform as this would help create the framework to ensure the long-term success of businesses, increased investment and support the growth of the wider economy.”
The IIA also worries that proposals which would strengthen internal controls were shifted to the UK’s Corporate Governance Code instead of being tabled for legislative action.
“We believe delivering this via legislation would have transformed corporate governance in the UK, improved company outcomes and long-term sustainability. As the UK Corporate Governance Code is followed on a comply-or-explain basis, we are concerned that this may provide company directors with a mechanism to circumvent the requirements.”
In the reforms, directors were expected to be asked to sign off on internal controls, with some support for mandatory external assurance and controls. Close observers believe lobbying has killed off early hopes for external assurance after arguments that directors be permitted to make their own assurance choices.
White paper
The audit reform debate appeared to come to fruition with the issuing of a white paper in July last year, containing dozens of separate proposals.
The Queen’s Speech confirmed the government was pushing ahead with the creation of a new regulator, ARGA (The Audit, Reporting and Governance Authority), which will be located in Birmingham, and the introduction of shared audit. But there was little information on a swathe of other proposals.
These included the introduction of new powers to sanction company directors and new audit committee standards.
The IIA letters are not the first to call on the Truss government to get on with audit reform. The ICAEW , one of the UK’s professional bodies for accountants, has also signalled to the new prime minister that the agenda is urgent.
Scotland’s accountancy body, ICAS, has also called for more action, saying reform “needs to be taken forward at pace”.
Labour has pushed the issue in Parliament, with a question asking when reforms would be brought forward. The government said a draft bill would appear in “this Parliament” and pursue legislation “as parliamentary time allows”.
That may be harder than it sounds. With support for Ukraine still absorbing much government time and now a currency crisis in full swing, the prime minister, chancellor and business secretary may shuffle audit reform to the bottom of their agendas. We could be waiting a while yet.