On 31 May 2022, the UK Government’s response to the consultation on strengthening audit, corporate reporting and corporate governance systems Restoring trust in corporate governance and audit was published. It is a rallying point for everyone involved in the business ecosystem.
While not the culmination of the process initiated in 2018 – involving three separate independent reviews, parliamentary hearings and an extensive consultation – this marks an important milestone. In anticipation of this response, and ahead of legislative changes, the regulator, companies and auditors have already progressed certain aspects of the Government’s proposals.
Despite the slow progress in finalising and enacting the reforms, companies have identified opportunities to seize some of the earlier ideas and proposals for reform – indeed many are focusing on enhancing their internal control frameworks and assessing and improving components of their fraud risk framework. Additionally, boards are actively enhancing their governance over climate, sustainability, and social issues beyond what is required in legislation or the UK Corporate Governance Code. For EY’s part, we continue to make significant investments in audit quality and have also incorporated enhanced procedures in respect of climate and fraud risks into our audits.
As the reforms are implemented, including the Draft Audit Reform Bill mentioned alongside the Queen’s Speech of 10 May 2022, we expect further consultations will follow including from the FRC on the UK Corporate Governance Code.
This summary (PDF) provides a high-level understanding of the measures in the response compared to the original consultation proposals. For ease of reference, the relevant chapters of the Government’s response are referenced in first column of the table.