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BEIS issues its 'Restoring trust in audit and corporate governance’ White Paper

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25 Mar 2021

The Department for Business, Energy and Industrial Strategy (BEIS) has published a consultation on strengthening the UK’s framework for major companies and the way they are audited ('the White Paper').

The White Paper sets out the Government's proposals to respond to over 150 recommendations arising from independent reviews carried out by Sir John Kingman ('Independent Review of the Financial Reporting Council'), the Competition and Markets Authority (CMA) ('Statutory audit market services study') and Sir Donald Brydon ('The quality and effectiveness of audit: Independent review') (all links to BEIS website).

The proposed reforms in the paper set out how the Government plans to address the findings of each review and include a number of new measures in relation to directors, auditors and audit firms, the audit regulator and shareholders. The reforms are focused on the largest companies as this is where there is greatest public interest in ensuring that audit and corporate reporting are functioning effectively.  The Government wants its reforms to be effective and is therefore looking to make decisive changes. Previous attempts at incremental reform have not prevented the problems identified by the reviews. The proposals in the White Paper are therefore intended to be significant, targeted measures.

The White Paper notes that the UK is consistently placed as one of the leading destinations for foreign investment in Europe and around the world, thanks to the strength of its workforce, innovation, and approach to better regulation. Reliable corporate reporting is vital to well-functioning financial markets, business investment and growth through enabling all interested stakeholders to make an informed assessment of a company’s performance and governance. It helps safeguard investors, creditors, employees, customers, suppliers and the wider public from corporate mismanagement. High quality reporting by directors allied with robust and challenging external audit should give confidence to all those with an interest in a company’s activities, position and prospects. The point is made that whilst corporate failure can happen, it should rarely be a surprise.

The Government believes that fundamental reform of the framework underpinning audit and corporate reporting is needed to rebuild public trust in the way the largest companies are run and scrutinised. The UK has long held a hard-earned reputation for high standards of corporate governance and robust protections for investors and other stakeholders, and this is vital to making the UK attractive to international business and investment. The White Paper proposals represent steps to address the weaknesses and lack of accountability that the Kingman, Brydon and CMA reviews have highlighted so that this reputation can be maintained and enhanced.

The most significant proposals covered in the White Paper are:

There are also some proposals from the independent reviews that have not been taken forward. 

Please click on the links above to be taken to our resource pages summarising the key features of the proposals.  

To balance the urgency of audit reform with its desire to manage additional requirements on businesses, the Government intends to take the following overall approach:

  • In general, measures that do not directly impact on businesses would be brought into effect quickly. This is intended to include:
    • measures associated with establishing the new regulator, including the powers and duties of the regulator; and
    • measures that do not take effect until something else is done (for example, powers to make legislation which will require the further approval of Parliament).
  • Measures with significant impacts on those regulated by the new regulator would be commenced quickly, but transition periods and/or phasing (particularly for those newly in scope of the regulator) may be appropriate to ensure a smooth introduction.
  • Measures with significant impacts on wider business are most likely to be considered for later commencement, a transition period and/or phasing. In particular this would include the proposed extension of the definition of Public Interest Entities and introduction of a stronger internal controls regime.

The consultation paper is accompanied by a regulatory impact assessment which examines the cost and benefits of implementation of the proposals. 

Responses are requested by 8 July 2021.

A press release, the full consultation and other supporting documents are available on the BEIS website.  The Financial Reporting Council (FRC) will be hosting a series of webinars on the White Paper.  Further information is available here.

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