After several high profile company collapses - from BHS to Arcadia to Debenhams - new audit reforms and corporate governance is meant to avoid company failures and safeguard British jobs in the future.
The proposed reforms would break up the dominance of the “big four” audit firms and strengthen the UK’s position as a world-class destination for investors by improving the quality of corporate reporting and sharpening focus on long-term success of large companies.
Business Secretary Kwasi Kwarteng said in a statement: “Restoring business confidence, but also people’s confidence in business, is crucial to repairing our economy.”
The UK is consistently placed as one of the leading destinations for foreign investment in Europe and around the world, but in recent years, investor and public confidence in how businesses are governed has been undermined by large-scale company failures, such as BHS, leading to severe job losses and the British taxpayer picking up the bill.
To improve corporate transparency the government is launching a consultation on wide-ranging reforms to modernise the country’s audit and corporate governance regime, targeting the UK’s biggest businesses and ensuring markets work effectively.
Robust and rigorous scrutiny is essential to ensuring that investors, employees and consumers have an accurate picture of the health of the company.
“Restoring business confidence, but also people’s confidence in business, is crucial to repairing our economy and building back better from the pandemic,” K Kwarteng said. “When big companies go bust, the effects are felt far and wide with job losses and the British taxpayer picking up the tab. It’s clear from large-scale collapses like BHS that Britain’s audit regime needs to be modernised with a package of sensible, proportionate reforms.”
To reinforce investor and public confidence in audits new reporting obligations would be introduced on both auditors and directors around detecting and preventing fraud, with boards required to set out what controls they have in place and auditors expected to look out for problems.
Plans also aim to make directors of the country’s biggest companies more accountable if they have been negligent in their duties – reflecting the level of responsibility that comes with holding such a position. Directors of large businesses could face fines or suspensions in the most serious cases of failings – such as significant errors with accounts, hiding crucial information from auditors, or leaving the door open to fraud.
Large businesses would need to be more transparent about the state of their finances, so they do not pay out dividends and bonuses at a time when they could be facing insolvency.
Directors would also publish annual ‘resilience statements’ that set out how their organisation is mitigating short and long-term risks, encouraging their directors to focus on the long-term success of the company and consider key issues like the impact of climate change.
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