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Government’s proposed audit market reform is vital to rebuild trust

The Government’s long-awaited consultation on the future of audit and corporate reporting was launched on 18 March for a 16-week consultation period.

It represents a welcome evolution of an outdated approach as well as an important step to rebuild trust in the profession and businesses.

At its heart lies a three-pronged approach which (1) proposes changes for auditors and the scope of their audit, (2) the introduction of a new regulatory body, and (3) greater responsibilities on directors. We believe that these all represent a big step in the right direction.

Confidence in major businesses and the audit profession as a whole have been shaken following a number of high-profile corporate collapses. In order to support the rebuilding of our economy following the pandemic, it is therefore vital that stakeholder perceptions of the integrity of these businesses and the industry are restored. This is true both domestically and on the world stage, with the UK widely recognised as a destination of choice for businesses around the globe.

The Government’s consultation is rightly focused on the largest companies because that is where there is greatest public interest in ensuring effective functioning of governance, independence, and financial reporting.

However, care will need to be taken to appropriately determine the scope of new measures – in particular the definition of public interest entities when considering larger private companies – to ensure that the proposals are applied proportionately and generate a net benefit outcome.

Small and medium-sized private businesses, which represent the lifeblood of the UK economy, should not inadvertently be captured by these proposals. At present there is a lack of clarity on what the proposals will mean for these smaller businesses. It is vital that the right balance is struck to ensure they are neither saddled with unnecessary regulatory burden and associated cost or overlooked completely.

Would you like to know more?

Blick Rothenberg will be formally responding to this consultation through the Government’s consultation process.

If you would like to read the Government’s full whitepaper you can find it here. The consultation closes on the 8 July 2021.

Or if you would like to discuss what this consultation may mean for your business, please get in touch with your usual Blick Rothenberg contact or Milan or Sunil using the contact details on this page.