The Government’s response to the Department for Business, Energy and Industrial Strategy (BEIS) consultation, “Restoring trust in audit and corporate governance”, was published on Tuesday 31 May 2022. You can view the Government response to the Audit and Corporate Governance Reform White Paper here.
The paper below provides some background to the consultation, the QCA’s response to the consultation, a short summary and a detailed overview of the Government’s response, and a comparison table. To view the paper, please click here.
The key changes within the consultation relate to:
- Public Interest Entity (PIE) definition – the definition of a PIE will be widened to include private companies and companies traded on MTFs (such as AIM and AQSE) if these entities have over 750 employees and an annual turnover of over £750 million
- Director accountability (internal controls) – the UK Corporate Governance Code will be amended to require a directors’ statement about the effectiveness of internal controls (applying to Premium Listed companies).
- Dividends and capital maintenance – legislation will require 750:750 PIEs to disclose their distributable reserves and explain the board’s long-term approach to dividends.
- New corporate reporting – A statutory Resilience Statement and an Audit and Assurance Policy will be introduced and apply to 750:750 PIEs.
- Supervision of corporate reporting – ARGA’s powers will cover the entire annual report and accounts and the regulator will be given the power to commission an expert review.
- Company directors – ARGA will have the powers to investigate and sanction breaches of corporate reporting and audit-related responsibilities by PIE directors. Amendments to the UK Code will also occur to increase transparency around bonus clawbacks.
- Audit purpose and scope – improvements to auditing standards and guidance will be made by the regulator and legislation will require directors of 750:750 PIEs to report on actions they have taken to prevent and detect fraud.
- Audit committee oversight and engagement with shareholders – ARGA will be given the power to set minimum requirements on audit committees in relation to the appointment and oversight of auditors.
- Competition, choice and resilience in the audit market – the Government will bring forward the proposals around managed shared audit for FTSE 350 firms and will step up the pace of the operational separation of audit firms.
- Supervision of audit quality – ARGA will look at non-legislative ways of improving the AQR process and continuing to seek consent from audit firms and audited entities where possible before publication.
- A strengthened regulator – the Audit, Reporting and Governance Authority will replace the FRC. The new regulator will have significantly increased responsibilities and powers.
- Additional changes to the regulator’s responsibilities – the Government will take forward multiple proposals regarding the regulator’s responsibilities.
To view the QCA’s summary, please click here.