The White Paper set 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 planned to address the findings of each review and included a number of new measures in relation to directors, auditors and audit firms, the audit regulator and shareholders.

The government's response summarises the feedback that BEIS received from stakeholders on the White Paper and sets out the measures it intends to progress with.  

The response covers proposals which impact a number of different market participants most notably, company directors, auditors and professional bodies. It does not set out a precise timetable, but rather outlines the actions to be taken, including what the Government intends to ask of the regulator and other stakeholders. The reforms will be delivered by a variety of mechanisms over a period of several years with a focus on targeted and proportional benefits, noting that the overall cost of implementation has been reduced from the previous White Paper. The Government has also signalled its intention to explore potential deregulatory measures. The mechanisms to be used include:

• Market developments, for example in the demand for assurance services beyond audit, from PIEs and other significant companies;
• Work by professional bodies, for example to enhance members’ training and development;
• Changes by the regulator: to the UK Corporate Governance Code that currently applies to premium listed companies, and ongoing improvements to audit standards;
• A Ministerial Direction that lays the foundation for the introduction of Public Interest Entity (PIE) auditor registration by the Financial Reporting Council (FRC) in the near future;
• Secondary legislation (statutory instruments), which could be used to establish new reporting requirements for PIEs (for example, a Resilience Statement and reporting on distributable profits); and
• Primary legislation (a Bill in Parliament), which the Government is preparing initially to publish in draft, for subsequent introduction when Parliamentary time allows, to establish a new regulator and set its powers, objectives and duties.

One key element of the reform package is the proposed extension of the definition of the Public Interest Entity. This proposal will be taken forward through primary legislation but the scope of the definition has been amended from the White Paper proposals so that companies with 750 or more employees and at least £750m annual turnover will be classified PIEs.  The Government has decided to implement a tiered approach for the proposals with some proposals applicable to all PIES and others dependent upon size.

The response makes clear that the timescale for implementation of some measures is expected to stretch over several years, noting that the granting of powers to the Audit Reporting and Governance Authority (ARGA) will require primary legislation, and that changes to secondary legislation or the UK Corporate Governance Code will necessitate further consultation. The detail will depend not only on Parliament but also on Ministers’ assessment of the economic circumstances at the time. The Government has committed to give careful consideration to the appropriate minimum lead times to apply, so that market participants can be assured that the pace of change will be measured and manageable.

As a key strand of these reforms, the Government’s intention is to create ARGA and equip it with its powers at the earliest possible juncture, since many of these factors represent work that ARGA will need to do. The timescale for this and other legislative measures will depend on the availability of Parliamentary time and on Parliament’s agreement to the Government’s proposals.

The FRC has indicated that, ahead of Government legislation, it will shortly be outlining an extensive work plan to advance reforms which can be developed through existing powers or on a voluntary basis.

The most significant proposals covered in the government's response are:

• Proposals in relation to the responsibilities of, and reporting by directors
  • Capital maintenance
  • Definition of public interest entity
  • Directors’ obligations in relation to fraud
  • Exploring options for attestations on internal controls
  • New regulatory regime for directors
  • Options for assurance on areas such as climate, Alternative Performance Measures (APMs) and Key Performance Indicators (KPIs)
  • Payment practices
  • Publication of principal risks & audit plan for engagement with shareholders
  • Supervision of corporate reporting
  • The Resilience Statement

• Proposals impacting the work of audit committees
  
  • Regulatory framework for audit committees
  • The Audit & Assurance Policy 

• Proposals on the future of audit 
  • A new professional body for corporate auditors
  • Enhanced reporting by auditors
  • Managed shared audits
  • Operational separation
  • Principles of Corporate Auditing
  • Publication of AQR reports
• Proposals for the future of the Financial Reporting Council (FRC)

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

A press release and the full government response and other supporting material is available on the BEIS website.