Latest audit reforms a missed opportunity

The UK’s government is claiming its revamp of corporate reporting and audit regime is going to help restore trust in big business.

The dominance of the Big 4 audit firms is being tackled, it said, along with the creation of a new regulator “to reduce the risk of sudden big company collapses, safeguard jobs and reinforce the IUK’s reputation as a world-leading destination for investment”.

But, there is a problem – not everyone is convinced this will actually happen! And, it’s not just the usual critics who think this. Lord Sikka told PQ magazine that the reforms will do nothing to improve the audit regime. Where he asked were the reform of audit independence, liability and public accountability?

Lord Sikka felt: “The government has missed an opportunity to restore confidence in audits and corporate governance.”

He was joined by an unlikely ally, the CEO of the ICAEW Michael Izza, who claimed the government ‘s approach has been “half-hearted and lop-sided”. Izza is really worried that the lessons from Carillon and other recent company failures have been ignored. He even suggested that ministers were totally wrong to believe what they have served up will help to restore public trust in big business.

Another critic, Professor Richard Murphy, said the government is clearly not willing to embrace the idea that market failure is possible. He is concerned that auditing has been left to reform itself, and this he said means the government has copped out.

A real worry will be the fact that even the Financial Reporting Council (FRC) has not been totally enamoured by these once in a generation reform. OK, it likes the creation of the Audit, Reporting and Governance Authority (ARGA), but said: “The Government’s decision not to pursue the introduction of a version of the Sarbanes-Oxley reporting regime is, the FRC believes a missed opportunity, to improve internal controls in a proportionate, UK-specific manner.”

The ACCA sees this as a major omission too, its feels companies and company directors need to report on the internal controls over financial reporting. CIMA’s CEO – management accounting, Andrew Harding, agreed: “These proposals continue to put a strong focus on audit, but we should not forget that external audit doesn’t operate in a vacuum. It is part of the wider corporate governance and reporting framework that oversees large corporate entities. When it comes to the adoption of internal controls, which we have strongly advocated for in the past, we want to see such reforms applied consistently by the largest companies rather than on a comply or explain basis, as it seems to be proposed.  

“The UK has been widely recognised as a leader in corporate governance. We cannot waste this new opportunity to make an impact and help promote trust, accountability and transparency in the modern business world.”