A leading member of the House of Lords has called for audit reform “now” after the government signalled long-expected changes and legislation are locked into further delay.

Lord Prem Sikka, emeritus professor of accounting at the universities of Essex and Sheffield, took aim at the government, after business minister Justin Madders wrote a letter revealing there would be no release of an audit and governance reform bill in the current Parliament.

Madders said the volume of legislation currently managed by the government was too heavy to allow more progress on audit reform. But he also argued the delay was, in part, due to improvements in “market oversight” over recent years.

Lord Sikka responded by saying there was no empirical evidence for the claim.

“There is a steady parade of audit failures as firms have failed to meet even the feather-duster requirements of the FRC [Financial Reporting Council].

“There is no transparency about conduct of audits. Corporate governance scandals fill the daily papers—the Post Office scandal, Grenfell, water companies, energy companies, banks, private equity, undeserved executive pay, financial opacity, profit sharing etc, are just a few reminders showing that corporate elites have little regard for the spirit of the rules and welfare of stakeholders.”

In his letter to the chair of the House of Commons business and trade select committee, Madders said there would be no audit and governance bill before the end of Parliament despite its inclusion in last year’s legislative agenda in the King’s Speech.

He said the additional time would be used to “ensure reforms are as robust as possible and address the challenges of the future”.

Government workload

Delays rested on the current heavy government workload and improvements in “market oversight”.

“The oversight of the market has improved dramatically since Carillion [2018], and we will ensure that these reforms take the next step to address the challenges of the future,” Madders said.

Audit reforms on the table include creating a new regulator—the Audit, Reporting and Governance Authority (ARGA)—with strengthened powers of investigation and, potentially, to sanction company directors for failures in their corporate reporting responsibilities.

There is also a proposal to introduce “managed shared audit”, a process in which Big Four audit firms share mandates with smaller players.

Some changes have gone ahead without legislation. The FRC has included new internal audit responsibilities in the UK Corporate Governance Code. And the regulator has also published new audit committee minimum standards. Neither are mandatory.

Audit firms have also gone through the process of separating audit from all other internal departments.

More voices

Other observers have responded to the fresh delays with calls to push ahead with reform.

ICAEW chief executive Alan Vallance has called for the government to prioritise audit, even though its agenda is full and its priority is to make the UK an attractive place to invest.

“But an audit and corporate governance reform bill has been on the stocks for almost a decade, through successive governments and eight secretaries of state for business.

“These reforms are a big part of the government’s current prioritisation of a growth mission designed to attract capital and investment, making the UK the best place to start and scale up a business.”

Liam Byrne, chair of the Commons trade and business committee, has asked Madders to clarify: what the government considers “burdensome” about audit and governance reform; whether the government will promise pre-legislative scrutiny of the bill, and when it is likely to emerge.

“Your letter does not spell out when you intend to introduce the draft Audit Reform and Corporate Governance Bill, only that it will not be put forward for pre-legislative scrutiny this session.

“When does this government intend to put forward this legislation?”