The proposed audit and corporate governance reforms, grounded in a 2018 report's scathing criticism of the Financial Reporting Council (FRC), have been dogged by delays. We anticipate that 2024 will see the government come under increased pressure to take steps to achieve its objective to ensure 'the UK remains one of the most transparent, safe and open places for business'[1].
In March 2021, the government published a white paper aimed at restoring public trust in the country's audit, corporate reporting and corporate governance frameworks. The paper proposed a set of reforms that would hold directors, auditors, and professional bodies to account more effectively for significant corporate reporting and audit-related failures.
In particular, the government proposed to establish an Audit, Reporting and Governance Authority (ARGA), with amendments to the UK Corporate Governance Code to follow thereafter. It was expected that with the ARGA's broader investigation and enforcement powers, company directors and auditors would come under increasing pressure to ensure that audits and governance frameworks adequately identify and mitigate the full spectrum of risks businesses face (not least the risk of fraud).
Although the Audit Reform Bill, which included the ARGA and associated reforms, was not included in the King's Speech in November 2023, and the FRC has decided not to hire additional workers in the 2024/2025 financial year because of the legislative delay, the FRC's chief executive Jon Thompson has recently stated that the situation "certainly won't stop us in our tracks getting on with the important work that we need to do."[2]. It remains to be seen whether the government will prioritise these audit reforms, but we expect pressure to intensify over the coming year.
Alongside these anticipated changes to UK corporate governance and audit requirements, the FCA has indicated a commitment to improving regulated firms' financial reporting, raising the bar not only for companies, but also for directors. The FCA is considering their very broad compliance systems and control requirements, both in terms of their internal controls and how they comply with third parties such as auditors and regulatory authorities.
The FCA announced at the start of August 2023 that they are making significant changes in the hopes of streamlining their transparency rules on the digital reporting of financial statements. Directors and companies will be held to account to ensure their policies and controls do not breach financial reporting requirements. It is hoped that improved information sharing will be yet another step to achieving the government's objectives and increasing the public's trust by ensuring accuracy and transparency within a company's financial statements.
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