It’s not just about audit reform. It is time to recalibrate the corporate ecosystem
By Michelle Mullen, ICAS Executive Director of Standards
5 February 2021
Members of the profession are well placed to support the aspirations of Government and the regulator to improve the corporate ecosystem.
As we await (at the time of writing) the publication of the BEIS consultation, ICAS has today issued a paper exploring how various recommendations from the reviews might be combined to deliver a tapestry of reform which will recalibrate the corporate ecosystem of UK Public Interest Entity companies (PIEs). This paper also sets out our thoughts on how ARGA can help rebuild public trust by encouraging higher standards of corporate governance, corporate reporting and audit.
From the outset ICAS called for a holistic review of corporate governance, corporate reporting and audit (“the corporate ecosystem”). External audit does not operate in a vacuum. It forms part of the wider corporate governance and reporting framework that oversees large corporate entities.
The reviews undertaken by Sir John Kingman, Sir Donald Brydon and the CMA audit market study were commissioned out of sequence, and it is now widely acknowledged that the review into the quality and effectiveness of audit is where the holistic review process should have started. However, the passage of time has at least allowed Government, business and the profession to absorb the key recommendations. We can start to see how they might knit together (and arguably not all of them do), and where the combination of only certain of the proposed reforms might be enough, for now, to help recalibrate the corporate ecosystem. We all want a regulatory environment which not only protects the interests of investors and the wider public, but also ensures the United Kingdom provides global business with a regulatory environment that is proportionate and respected.
ARGA has the potential to become a globally respected improvement regulator. It can help address the audit expectation gap and raise audit quality. It can also help tackle the directors expectation gap, in terms of the public’s understanding of what directors are responsible for, and hold them accountable.
This is also a call to members of the profession to become forces for change in their own organisations. Chartered Accountants play a strong role in the corporate governance, stewardship, reporting and audit of PIEs. The cumulative effect of their influence can help reinforce the importance of ethics at the core of business practices, and a more responsible and holistic approach to business.
ICAS believes that the profession is well placed to support the aspirations of Government and the regulator. We recognise that changes need to be made, and we all need to make a stronger commitment to support the future of corporate reporting and audit. We have a common ambition of delivering enhanced public trust in business and the profession, and an improved corporate ecosystem. In other words, we all want to see ARGA succeed. Whilst the FRC leadership has been charged in the meantime with the implementation of a number of reforms that do not require primary legislation, it is very important that ARGA can build and be given the keys to its new house.