Officials at the UK’s largest body representing board directors believe there remains a chance government may seek new proposals for audit reform.

According to the annual policy outlook from the Institute of Directors (IoD), the future of audit reform—a process kicked off in 2018 with the collapse of outsourcing and construction giant Carillion—remains shrouded in “uncertainty”.

Even though the new Labour government pledged in the King’s Speech to continue with a reform process that had “stalled” under the Conservatives, it is unclear how the current administration will proceed.

“Although the government has affirmed its commitment to a draft bill on corporate governance and audit reform,” writes Roger Barker, head of policy at the IoD, “there remains uncertainty about the specific measures to be adopted and whether it will be a legislative priority.

“Early in the year, the government may launch a new consultation process aimed at gathering views on whether to proceed with the previous proposals or, alternatively move in a different direction.”

New regulator

Key among the current proposals is a new regulator—the Audit, Reporting and Governance Authority (ARGA)—potential new powers (among them the ability to sanction directors failing in their duties), and managed shared audit (splitting audit between a major firm and a so-called “challenger” firm).

There have been few updates on audit reform since Labour was elected last year, excepting a debate in the House of Lords.

During the debate, government minister Lord Leong said a new bill would “look to give ARGA powers to investigate and sanction company directors for serious failure in meeting their existing duties and responsibilities relating to accounts, corporate reporting and audit.”

He gave no indication whether specific measures for managed shared audit remained under review but said the government would “look to find a balance” between “choice, resilience and quality”.

He added: “We are considering carefully the possible impact of shared audits for any companies, especially listed ones, and changes to the operating structure of audit companies, as part of our policy development on competition, choice and reliance in the market.”

This week, the Department for Business and Trade could offer no update on progress other than to point to the statement made in the King’s Speech.

Business ethics

The IoD also says in its report that the Post Office software scandal—in which hundreds of sub-postmasters were wrongly accused of fraud, with some even being imprisoned—would have an impact on boardrooms.

“Boards will seek to identify and embed attitudes, values and behaviours that support the achievement of business objectives.

“In 2025, frameworks of governance and business ethics will be incorporated into practices in a more explicit way.

“More than ever, business will see the value of developing and nurturing a pipeline of future leaders, and investing in their leadership skills. Employee wellbeing will be a priority.”

And there was a warning:

“Stakeholders look to leaders to live the organisation’s values and define the business culture. Those who fail to demonstrate ethical conduct are exposing themselves and their organisations to risk.

“Organisations will need to be vigilant in monitoring their online reputation and rehearse crisis management plans—although the optimal approach is to do the right thing in the first place.”