The UK election result has prompted renewed calls for the audit reform agenda, abandoned by the previous government, to be kickstarted as part of Labour’s growth plans.

On Thursday, the Labour Party won a historic majority after 14 years of Conservative government. In 2018, a review of audit regulation was begun following the collapse of construction firm Carillion. However, few of the proposals—including establishing a brand new regulator—have been implemented.

The election caused a number of governance experts and observers to make calls for audit reform to be placed back on the government’s agenda.

Glenn Collins, head of technical and strategic engagement at accountancy organisation ACCA, says: “The incoming Labour government must act swiftly, as the first 100 days in office are crucial for any new administration.

“ACCA would welcome outline timetables for addressing key issues such as economic, fiscal and corporate governance reforms.”

Fellow accountancy body the ICAEW has also underlined the need for the new government to turn to the discarded reform agenda.

“It’s the right time for audit and corporate governance reform to be prioritised,” says policy director John Boulton, quoted in an article on the institute’s website.

“Reliable, trusted reporting by companies is not ancillary to economic stability, but fundamental.”

Elsewhere, the Institute of Directors has drawn attention to unfinished reforms, calling for the government to “follow through” on delayed changes.

After three reviews and Parliamentary inquiries, the department for business, then under the leadership of former chancellor Kwasi Kwarteng, issued a 190-page report in May 2022, setting out the government’s direction of travel on reform.

New responsibilities

Key among the changes was a new regulator with strengthened powers to replace the Financial Reporting Council, the current watchdog.

The government also indicated it would legislate for “managed shared audit” as a response to competition issues in the audit market.

Audit committees were to receive new minimum standards for their work monitoring auditors, and there would be new reporting requirements, including a “resilience” statement that would ask companies to consider their futures over the short, medium and long term.

There would also be a responsibility to report on measures to beat fraud and to set out a company’s audit and assurance policy.

The reporting measures were killed off by government in October last year and no legislation has come forward to create the new watchdog, despite industry efforts to persuade the government into action.

The reasons for little or no movement are varied. Over the past two years, government attention has been focused on many other issues.

But there has also been a change in attitude. When the government took action last year to U-turn on new reporting obligations, it was viewed as a result of campaigning by the London Stock Exchange; its chief executive, Julia Hoggett, chairs the Capital Markets Industry Taskforce, which lobbied for a “reset” in Whitehall’s approach to corporate governance.

Though the incoming business secretary, Jonathan Reynolds, has been meeting with business leaders, there is little to indicate his attitude toward audit reform. Last year, while in opposition, Reynolds indicated that Labour would continue with changes to audit, but it did not appear in the party’s manifesto.

Audit remains the core of UK corporate governance. Many of the proposed reforms were considered necessary and innovative—before they disappeared from view. Labour may yet give them a fresh airing.