On 18 March 2021, the Business Secretary, Kwasi Kwarteng MP, published the long-awaited consultation on the three audit-related reviews (available here), which will run for 16 weeks. The consultation proposes wide-ranging reforms to the audit and corporate governance landscape in the UK.
The consultation has been published following the three audit-related reviews (Sir John Kingman’s review of the FRC, Sir Donald Brydon’s review of the quality and effectiveness of audit, and the CMA’s market study on statutory audit) and combines the 155 recommendations put forward within these reviews.
Collectively, each proposal within the consultation is of significant importance to the QCA and the small and mid-sized quoted company ecosystem.
We highlight the following proposals as specific areas of interest to QCA members (which we discuss in greater detail below):
- The expansion of the definition of Public Interest Entities (PIEs) to include some AIM-quoted companies;
- Increasing the accountability of directors through new requirements in relation to internal controls (Sarbanes-Oxley) and dividends and capital maintenance;
- New reporting requirements through a Resilience Statement and Audit and Assurance Policy;
- Giving the new regulator more power to direct changes to company reports and accounts;
- Giving the new regulator greater enforcement powers against directors of PIEs and strengthening malus and clawback provisions;
- Increased director responsibilities regarding the detection and prevention of fraud
- Increasing audit committee oversight and engagement with shareholders.
We highlight the following as specific areas of interest to our accountancy firm members (which we discuss in greater detail below):
- The expansion of the definition of PIEs;
- Changes to audit purpose and scope; and
- Shared audit, operational separation and increased regulator monitoring powers.
QCA members can view an initial brief, which outlines the key proposals and their implications in more detail, here.