In his speech on 17th July, King Charles III formally announced plans to revive the draft Audit Reform and Corporate Governance Bill. Emphasising the Labour government’s commitment to partnering with businesses and workers, he claimed the bill would “help the country move on from the recent cost of living challenges by prioritising wealth creation for all communities.”
The aims of the audit reform are similar to those seen in the Labour Party’s 2019 report, ‘Rewriting the Rules.’ In which, they stated that “businesses are the heartbeat of our economy” but also highlighted issues of “unfettered profit maximization and extraction” and limited transparency in reporting. Now following their electoral win, the draft Audit Reform Bill looks to address these concerns around audit quality, corporate failures and data accessibility.
We’ll delve into the objectives of the draft Audit Reform Bill and what it could mean for UK businesses, with recruitment insights on how this may heighten the current hiring demand for accounting professionals.
What will the draft Audit Reform Bill do?
As stated in the accompanying papers to the King’s speech, “investors and the public need access to truthful reporting from our most important businesses on their finances and related issues. This is critical for enabling trust in major companies and to underpin growth.”
To paraphrase, the aim of the draft Audit Reform Bill is to:
- Protect jobs
- Build trust in British firms
- Avoid large-scale corporate failures
- Uphold accountability for company directors
- Encourage long-term investment in UK companies
- Ensure quality audits for all businesses that need them
- Endorse standards and independent scrutiny of companies’ accounts
- Reduce the harm that financial reporting errors can do to businesses and communities.
A short history of the draft Audit Reform Bill
In 2021, the government published a white paper with proposals to reform the UK’s audit and corporate governance framework. This was created in response to three independent reviews commissioned following the ruinous collapse of Carillion PLC in 2018. This incident infamously left 30,000 subcontractors without pay, incurred £1 billion of debt and left a pension deficit of at least £500 million.
However, progress stalled and the Draft Audit Reform and Corporate Governance Bill was eventually withdrawn by The Business Secretary on 16th October, 2023. The decision came after it was deemed ‘burdensome’ by companies, as increasing the amount of information required in reports would incur additional annual costs. According to City A.M, attempts were also made to revive the London IPO market during this time. These tighter regulations raised concerns for the Conservative government, as they could become a potential deterrent that prevented firms from listing in the UK capital.
The eventual decision to shelve the reform proved “unhelpful for corporates and investors, and for UK plc more generally,” with them reportedly being left in a state of limbo after preparing for the changes to be enacted.
In response to the 2024 King’s speech confirming the audit reform will now happen, the Association of Chartered Certified Accountants (ACCA) expressed their support, deeming it “a huge step forward.” Their Director of Policy and Insights, Mike Suffield, stated; “audit reform has been severely overdue in the UK, yet repeated delays have sidelined it, despite the importance of it in promoting the UK as a great place to do business.”
What does the draft Audit Reform Bill mean for large businesses?
The King’s speech shared that employers and consumers will gain access to an accurate picture of large companies’ health, through “robust and rigorous scrutiny” by auditors. Ultimately, the intent is to deliver a more secure economy.
As part of the reform, the current watchdog, the Financial Reporting Council (FRC) will be replaced by the Audit, Reporting and Governance Authority (ARGA). According to the FRC’s Chief Executive, Richard Moriarty, this welcome change will strengthen their “regulatory toolkit,” allowing them to “act fully in the public interest, support growth and the ability of companies to attract the capital they need.”
The new ARGA watchdog will have greater powers to tackle bad financial reporting. Consequently, Directors of “the UK’s most significant companies” will be sanctioned if they are found to commit serious failures in their financial reporting and audit responsibilities.
Other important updates for businesses include:
- The extension of Public Interest Entity (PIE) status to the largest private companies. This is to ensure their audits are high-quality and provide early warning of financial problems
- Removing unnecessary rules for smaller Public Interest Entities by cutting disproportionate requirements
- A regime which will “oversee the audit market, protect against conflicts of interest at audit firms, and build resilience so that quality audit is available to all companies that need it.”
The draft Audit Reform Bill and increasing demand for accounting professionals
A significant factor of the draft Audit Reform Bill is the accessibility of data, presented through accurate financial reporting. This may require an increased demand for accounting professionals who can present and explain data in layman’s terms – not just to company board members and stakeholders, but now also to consumers.
As such, the reform will likely increase hiring demand for the following financial reporting skills:
- The ability to communicate complex data in accessible terms
- In-depth gathering, assessment and monitoring of financial data
- Ensuring that all financial data is accurate to withstand scrutiny during audits
- Knowledge of reporting standards and upholding them to align with any new updates
Interim finance professionals may also become more sought after during this anticipated period of change. With years of experience, these temporary hires can uphold reporting standards and upskill permanent accounting staff, enabling them to deliver thorough and accurate reports. To learn more about temporary hires, read our short guide: The top 5 benefits of hiring a temporary worker.
How Distinct can match you with skilled accountancy professionals
The long-awaited Audit Reform Bill seems to foreshadow a good deal of adaptation for the accountancy practice market. As leading recruiters operating across London, we are well placed to support businesses of all sizes throughout this period of change, matching them with exceptional accounting professionals. To discuss your hiring needs, contact us today.
