UK audit reforms and governance to be watered down after business backlash
The UK’s reform package to overhaul corporate governance and auditing will be “scaled back” following pushback by businesses, according to reports.
Officials working on the plans, which are being finalised, are expected to water down some of the proposals, the Financial Times reported.
The reform package, which has been touted as the biggest overhaul to British audits and corporate governance in generations, follows a series of high-profile corporate scandals and collapses including retailer BHS and Carillion.
Changes to the proposals to make them more “business friendly” come after uproar by businesses over the costs of the new proposed rules.
The additional costs, executives have argued, will make it harder to keep existing businesses in the UK, and to attract new ones, as the economy recovers from both the pandemic and the effects of Brexit.
The reforms include a tightening of internal company controls by mandating an annual statement reviewing their effectiveness, to be made by directors.
One proposal pegged to be dropped is that based on the US Sarbanes-Oxley Act, which uses legislation to force directors to sign off on businesses’ internal controls for financial reporting.
Earlier this year it was reported that the new reforms could see directors facing fines, suspensions or even having to return their bonuses in the event of a company collapse or serious director failings.
But now a limited version of the rule, which would also be harder to enforce, is expected instead.
Without legislation binding them, directors will be let off the hook from taking more responsibility for company accounts.
The pared-back version of the rule would also only apply to companies with a premium listing, leaving privately-owned firms free to ignore the guidance.
For accounting firms, who have been at the receiving end of much criticism over failures to raise the alarm before corporate scandals, the move puts more of the onus on auditors.
“If any one of the pillars of this reform programme is weakened then the whole package is at risk of falling down,” warned Michael Izza, chief executive of the professional accountants body ICAEW, in a statement.
The white paper on reforms “recognised that tighter regulation of audit would not be enough by itself, and it set out an ambitious and balanced package of measures which included a new reporting requirement for internal controls,” he added.
The UK business department said no decisions have been taken and the reforms have yet to be signed off by business secretary Kwasi Kwarteng.