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Queen’s Speech delivers ‘lopsided reform’ on audit

Author: ICAEW Insights

Published: 10 May 2022

ICAEW Chief Executive warns that the UK is still ‘years away from seeing new legislation on the statute book’ as Prime Minister fails to prioritise audit and corporate governance.

New laws on much-needed audit reform look set to face further delays as the government set out its agenda in the Queen’s Speech today in a bid to lure voters in the next general election and appease its right-wing backbenchers.

Despite several high profile corporate collapses and promises from the government over the past few years to address failings in audit and corporate governance, Boris Johnson failed to prioritise new legislation. Moreover, there are concerns that the scope of change doesn’t go far enough.

ICAEW Chief Executive Michael Izza said: “The mention of audit reform in this Queen’s Speech is doubly disappointing. First, the proposed scope of change is modest and, in particular, it constitutes a missed opportunity to address wider issues in corporate governance. This might well end up as the lopsided reform we have consistently warned against.” 

Although the Prince of Wales made no mention of audit reform in his relatively short speech in parliament, long-awaited plans on overhauling audit and corporate governance were outlined in the full transcript of the Queen’s Speech.

The draft Bill will, among other elements, establish a new statutory regulator, the Audit, Reporting and Governance Authority (ARGA); provide new measures to open up the market, including shared audits; enlarge the scope of public interest entities; and give the new regulator powers to enforce directors’ financial reporting duties.

Draft legislation may be put forward during this session, which would delay implementation until 2024, but with 38 bills and draft bills to contend with, there may not be enough parliamentary time during this session.

Izza said: “The second disappointment is more serious: timing. There seems to be no chance that this Bill will pass in the forthcoming parliamentary session, and very little prospect of it doing so in the one after that. Three major independent reviews, a White Paper and many public consultations on from the collapse of Carillion and it seems that we are still literally years away from seeing new legislation on the statute book. It is not too late for government to give this the priority it deserves.” 

In the wake of Russia’s invasion of the Ukraine earlier this year and the urgent need to impose sanctions on Vladimir Putin’s closest allies, the government fast-tracked the Economic Crime (Transparency and Enforcement) Act 2022 in March 2022, and committed to introduce a further economic crime bill during this parliamentary session. 

“A bill will be brought forward to further strengthen powers to tackle illicit finance, reduce economic crime, and help businesses grow,” the Prince of Wales said in the speech, which he delivered for the first time today on behalf of the Queen, who had to miss the ceremony for only the third time in her 70-year reign due to ‘mobility issues’. 

In total, the Prince of Wales outlined 38 bills and draft bills that Boris Johnson’s government will prioritise in the new parliamentary session, highlighting the expected emphasis on the cost of living as a result of escalating inflation and the Levelling Up agenda.

The proposed bills will be the subject of debate in the House of Commons later today and will form the content of debate for the next five days.

The Speech also highlighted government efforts to stabilise rising inflation and commit to sustainable development. The Prince of Wales said: “Her Majesty’s government will drive economic growth to improve living standards and finance sustainable investment in public services. This will be underpinned by a responsible approach to public finance, reducing debt while reforming and cutting taxes. Her Majesty’s ministers will support the Bank of England to return inflation to its target.”

On the Levelling Up agenda, plans were outlined for legislation to be introduced to modernise rail services and improve reliability for passengers as well as bringing forward an energy bill to deliver the “transition to cheaper, cleaner and more secure energy”.

Bills on financial services and public sector procurement were also mentioned in today’s Speech to be dealt with in the 2022/23 parliamentary session. In the wake of Britain’s exit from the European Union, the government has promised “far-reaching reform of financial services regulation with the aims of increasing competitiveness and taking advantage of newly-obtained freedoms to shape regulation after leaving the EU”.

“A bill will enable laws inherited from the European Union to be more easily amended. Public sector procurement will be simplified to provide new opportunities for small businesses. New legislation will strengthen the United Kingdom’s financial services industry, ensuring that it continues to act in the interest of all people and communities,” the Prince of Wales said.

The speech also laid out plans to publish measures to create “new competition rules for digital markets and the largest digital firms”. In March, Business Minister Paul Scully said the government would be passing legislation on it “when parliamentary time allows”.

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