Investments in UK-listed companies are “not as safe as they could be”, according to an expert audit industry observer, following the government’s January decision to bring audit reform to a halt.

Anne Kiem, chief executive of the Chartered Institute of Internal Auditors, was appearing on Board Agenda’s Governance Watch podcast when she made the comments, suggesting there is still reason to push ahead with a reform agenda.

“That’s my concern with this not going through—the knock-on effect it will have on investor confidence,” Kiem said.

The government’s statement at the beginning of the year brought an end to a drive for change triggered by the collapse of the construction giant Carillion in 2018.

Parliamentary investigations, three government reviews and a white paper followed, with dozens of proposals.
Some, like operational separation of audit from other services, have been handled voluntarily. Another—directors reporting on internal controls—has been managed through the UK’s corporate governance code.

The powers that won’t be

But other big changes have still to happen. Managed shared audit (a small firm working alongside a big firm on the same audit mandate) has disappeared, as has the prospect of new powers for regulators to investigate and sanction company directors in relation to poor corporate reporting.

Another loss keenly felt by reform-minded observers is a change to the definition of ‘public interest entity’, so that it ensures systemically important private companies are captured by audit rules and regulations.

One change still alive is the placing of the regulator—the Financial Reporting Council (FRC)—on a statutory footing.

There is a small hope that some aspects of audit reform may still be delivered, but it could be piecemeal and not involve a substantial audit reform bill.

Dean Beale, executive director of the Centre for Public Interest Audit, a research and policy body, said in the podcast: “What we’ve lacked is that one big comprehensive, consolidated hit of an audit reform and corporate governance bill.

“That’s not to say that some of the important aspects of that won’t still be delivered.

“But they may be delivered in a different way.”

One worry in cancelling further work on reform is that audit regulation falls unevenly on auditors and fails to address boardroom accountability for corporate reporting.

Beale adds: “A regulatory framework that proportionately holds boards to account for their responsibilities in financial reporting is really important. At the moment, there are gaps there and the bill would have gone some way to address some of those gaps.”

You can listen to the full episode on Spotify, Apple and all major podcast platforms.

The podcast was produced in association with NASDAQ Governance Solutions.

You can also access the full podcast here.