BEIS Consultation Paper – Restoring Trust in Audit and Corporate Governance

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Have you responded to the BEIS consultation paper yet? This is a consultation that will frame the role of the new regulator, the Audit, Reporting and Governance Authority (ARGA) and radically change the corporate governance landscape.

It could also have major impacts on the attractiveness of the UK as a place to list, and the incentive for start-ups to IPO.  With a deadline of 8 July 2021, there is no time to lose in submitting your views.  At 230 pages, including 98 detailed questions, there is a lot to take in.  Here’s a very brief summary of the corporate governance issues, which we hope will help.  Should these be implemented via legislation or changes to the UK Corporate Governance Code?

Which entities does it cover?

The proposals cover an expanded definition of Public Interest Entities.  Companies listed on regulated markets, credit institutions, insurance undertakings will be within scope, but also possibly AIM companies and larger private companies.

Take notice, Directors!

There is likely to be a power for the regulator to sanction directors for breach of Companies Act duties and new obligations in respect of internal controls.  Directors may be required to make an explicit statement about the legality of dividends and their effect on the future solvency of a company.  On the face of it, these proposals may be welcome, but they needs to be proportionate in order not to disincentivize talented directors and reduce diversity.

The Annual Report

Views are invited on proposals for an annual resilience statement replacing the current going concern and viability statements, including TCFD reporting, and an Audit and Assurance Policy (AAP). There is a proposed minimum content for the AAP and an annual vote at the AGM, underpinned by changes to the Companies Act 2006.

ARGA’s supervisory Powers

The regulator’s remit may be extended by new powers to direct changes to company accounts, powers to publish correspondence and summary findings, a pre-clearance service, and the inclusion of a wider range of investor information within the scope of the regulator, such as preliminary results announcements and investor presentations.

Audit Purpose and Scope

A key part of the consultation, the establishment of a new corporate auditing profession, good audit practice principles, a duty on auditors to consider a wider range of information and new obligations on auditors and directors on prevention of fraud. Shareholders may be asked to contribute their views on a company’s audit plan as part of a formal process.

Competition, Choice and Resilience in the Audit Market

With the dominance of the “Big Four” this has been a hot topic for many years. The proposals include ideas on how to develop “challenger firms”, including the possibility of managed share audits where a meaningful proportion of audit work within a company is conducted by a separate firm.  Another suggestion is to impose a market share cap where ARGA would review the pipeline of FTSE350 audit tenders and reserve a proportion of them for challenger firms.

Beyond Governance is here to help. We can assist you with your own tailored response to BEIS or your own industry representative. We are also interested in your views, which will help to inform our own response, so get in touch today.

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