On 18 March 2021, the UK Government published a consultation document entitled: ‘Restoring trust in audit and corporate governance’. It is over 200 pages long and contains over 90 questions. It combines the UK Government’s response to more than 150 recommendations from three recent reviews of audit and the audit market in recent years:
- the independent review of the Financial Reporting Council (FRC) by Sir John Kingman in December 2018;
- the independent review of the quality and effectiveness of audit by Sir Donald Brydon in December 2019; and
- the Competition and Markets Authority’s statutory audit services market study published in April 2019.
The UK Government’s proposals are focused on the largest UK companies. The Government proposes to increase accountability with the Audit, Reporting and Governance Authority (ARGA) having new powers to sanction all directors of large companies when they neglect their duties. There will also be increased internal controls over financial reporting, dividend and capital maintenance decisions, and the steps that directors are taking to consider and strengthen a company’s future resilience. Measures will also be developed to strengthen malus and clawback provisions within executive directors’ remuneration arrangements. Auditors and audit firms will have greater accountability for the quality of the work that they do through the proposed creation of a new, stand-alone audit profession. The Government is also proposing new measures to increase competition and reduce the potential for conflicts of interest with respect to Audit firms. Shareholders will be given stronger and better opportunities to engage with companies, particularly on audit matters and will have the opportunity to propose to the audit committee areas of emphasis to be considered within the auditor’s annual audit plan. The consultation will close on 8 July.