The government’s “capricious abandonment” of the UK’s audit reform agenda represents a “colossal waste of money” and has left business chiefs and investors in a “state of uncertainty”, according to an open letter from corporate governance leaders.

The Chartered Governance Institute’s (CGI) letter, penned by chief executive Sara Drake, adds that failing to continue with the reform process “sends a bad signal about the government’s commitment to responsible capitalism…”.

The letter is the latest episode in what has become a clash over the future of corporate governance in the UK.

Drake writes in her letter to business secretary Kemi Badenoch: “The best protections against sudden corporate collapses are good governance and reliable reporting. The completion of this reform agenda is urgent in order to restore confidence to the financial markets and to provide other stakeholders with reassurance.”

The audit reform agenda has been under way since the collapse of Carillion, the construction giant, in 2018. After parliamentary inquiries and three significant government-ordered reviews of audit, the audit market and regulation, a white paper with reform proposals was published in July 2021.

Since then few of its proposals have been implemented. New disclosures—including a risk and resilience reporting and audit and assurance policies—were abandoned in October after campaigning from the London Stock Exchange and the Capital Markets and Industry Taskforce (CMIT), a lobby group founded and chaired by LSE chief executive Julia Hoggett. The CMIT has published its own letter calling for a governance “reset” arguing that governance in the UK has become a “burden”.

In November, the King’s Speech—the UK’s legislative agenda—failed to include an audit reform bill  which widely expected to create a new audit and governance regulator with strengthened powers. It was hoped the bill would offer detail on the “managed shared audit” a solution the government adopted to improving the audit market.

Critics have argued the government’s approach to audit reform could “diminish” the UK’s reputation for reporting while investors have argued the change of heart makes “little sense” and is based on “mistaken” beliefs about regulation.

One piece of success, however, has been the introduction of provisions beefing up internal controls in the UK’s Corporate Governance Code .

Elsewhere, there is further pressure on the government from investors over plans to push ahead with reforms to the London listings regime. The International Corporate Governance Network (ICGN), a club for investors, says changes aimed at making duel class shares easier to deploy are a “regression” for UK governance that creates “undue risk”.

Meanwhile, CGI calls on government to clarify directors’ duties over disclosures and expansion of regulation to cover large private companies. It also calls for regulators to have powers to force changes in annual reports and powers to investigate and sanction directors for corporate reporting failures.