After almost eight years of reviews, recommendations and debate, the government has indicated that the long-awaited audit reform bill is dead and will now not go ahead.

The Times reports today that the government has written a letter to the business and trade committee of the House of Commons saying that, after a review, it has made a “difficult decision” to end its consultation on measures intended for the bill.

Blair McDougall, a business minister, is quoted in The Times, writing that the “priority is to promote economic growth and reduce administrative burdens”.

Little more than two weeks ago, McDougall published a written statement in the Commons indicating that the bill would be delayed until after the current session of Parliament.

The declaration ends any prospect of a proposed new regulator—the audit, reporting and governance authority—with brand new powers to hold auditors and company directors to account over their audits and disclosures.

Efforts to define new reforms were launched after the collapse of the construction giant Carillion in 2018. After three government reviews into auditors’ regulation, the audit market and audit content, as well as white papers and much discussion, the reforms have foundered on the government’s drive to alleviate the burden of business regulation.

The next big scandal?

It was only last week that Richard Moriarty, chief executive of the Financial Reporting Council, the current watchdog overseeing auditors, had warned reforms should be introduced in what he called “peacetime”—before another big accounting or audit scandal takes place.

There is widespread disappointment among audit and accounting professionals. Maggie McGhee, executive director of ACCA, one of the big professional bodies for UK accountants, said: “We cannot hide our disappointment and our disagreement with this decision, which we think makes no sense.

“The time to reform and strengthen corporate governance is when we are in a relatively good place, not when are in the midst of a corporate governance and audit failure crisis. So we disagree completely with the idea that the need for reform is less pressing. Businesses do not grow where corporate governance is below par.”

On LinkedIn, Caroline Escott, chair of the Governance for Growth Investor Campaign, urged the government to reconsider its position. “Eight years after Carillion’s collapse and only a few months after audit and controls issues wiped off almost £600m of shareholder value in one day from WH Smith, we’re disappointed that these necessary and important audit reform measures have been shelved.”

‘Disappointing’

Anne Kiem, CEO of the Chartered Institute of Internal Auditors, says: “It is deeply disappointing that the Government has announced it will not be proceeding with the Audit Reform Bill that it promised it would deliver in the King’s Speech. We urge the Government to make good on its promise of putting the Financial Reporting Council on a legal footing with the powers to do its job effectively and to make this a priority.”

The FRC issued its own statement. “The government’s confirmation that it intends to put the FRC on a full statutory footing is welcome news, rightly bringing us into line with other major UK economic regulators and addressing where there are gaps in our information gathering powers.

“We recognise the government is balancing many competing priorities, which means the full package of reforms is not being taken forward—but the FRC has not been standing still and we will continue our work supporting confidence and growth in the UK economy.”

Statutory footing would ensure the FRC’s powers and objective would be set out in legislation. It remains possible the legislation would create new powers for regulators though, given the government’s position, it is unlikely they would be anywhere close to those recommended in previous reviews.

Fallen by the wayside

Since 2018, the Kingman Review, Brydon Review and a Competition and Markets Authority review all set out recommendations. Very few of those have made their way to implementation. Directors face making statements on internal controls under a revamped UK Corporate Governance Code, but little else remains.

That said, audit firms have changed, mostly having divided their audit arms from other services; regulators point to rising audit quality.

The concentration of the audit market remains much as it was, though small inroads have been made into the domination of the Big Four audit firms.

It has been a long road for audit to get the government’s U-turn. Close observers will await the next financial scandal to see how well the decision stands up.