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Much-needed audit reform should not stifle the mid-market, say accountants at high-profile Manchester event

Author: ICAEW Manchester

Published: 25 Oct 2022

Proposals to reform the UK’s audit and corporate governance regime should proceed as planned despite the current political turmoil, representatives of the accountancy profession, business and regulators told an event last week jointly hosted by ICAEW Manchester and Alliance Manchester Business School (AMBS).
However, delegates also emphasised that the government should listen to business with regard to the detail of implementation, and beware of unintended consequences.
Following a number of high-profile corporate collapses, the government has undertaken a string of reviews into the audit sector to enhance audit quality, increase competition, reduce conflicts of interest, and improve regulatory oversight.

In response to more than 600 formal submissions, the Department for Business, Energy and Industrial Strategy is now drafting a bill on reforming audit and corporate governance that, among other things, will lead to a new statutory regulator, to be known as the Audit, Reporting and Governance Authority (ARGA). This will take over and build upon the existing functions of the Financial Reporting Council (FRC).

Addressing the event in Manchester last week Lord Callanan, under secretary of state for business, energy and corporate responsibility, told an audience of business leaders, accountants, academics and students, “We are definitely proceeding with drawing up the legislation, and I am hoping to get a parliamentary slot to introduce it.”
Delegates at the event on the future of audit, which took place on 11 October, also heard speeches by Miranda Craig, director of strategy and change at the FRC, and Julia Penny, national president of ICAEW. Both emphasised their desire to see the proposed changes enacted in primary legislation.

Rod Sellers OBE, president of ICAEW Manchester, who chaired the event, said, “Whatever might be going on at Westminster, our speakers and delegates made it clear that the government should not become distracted from proceeding with these vital reforms.

“During his speech Lord Callanan emphasised the importance of strong corporate governance to the UK’s competitiveness. He acknowledged that measures to increase confidence in audit and corporate governance would ultimately be pro-growth, by decreasing the cost of capital for well-run companies, and I urge our political leaders to remember this as and when the government stabilises and is able to focus on producing a legislative timetable.”

The event last week concluded with a panel discussion and group question and answer session. The panel, chaired by Chris Humphrey, professor of accounting at AMBS, consisted of Julia Penny and Rod Sellers from ICAEW as well as Maria Hallows, executive partner at Beever and Struthers, and Graham Rigby, Manchester office managing partner and head of audit for the North West at Azets.

While delegates and panel members broadly supported the proposed measures that would apply to the largest companies, they were also concerned about the potential implications for medium-sized companies.

Mr Sellers said, “During the group discussion it was clear that representatives of mid-market businesses, and the auditors who work with them, were worried that measures designed to prevent conflicts of interest when auditing the largest firms could filter down and prevent firms that audit mid-market businesses also acting as trusted advisers to their clients.
“If accountancy firms who work in the mid-market have to choose between auditing a business or providing a vast range of other value-added services, many of the best firms might be tempted to choose the latter. This would potentially actually have a negative effect on the quality of audit.

“Lord Callanan said that while the government was broadly committed to going ahead, it was also still open to reviewing the detail of the proposed measures. I hope this remains the case, and we intend shortly to make a formal submission to the Department for Business, Energy and Industrial Strategy, raising the concerns expressed by our delegates.”