The Government is consulting on plans to modernise the country’s audit and corporate governance regime, building on the recommendations of three recent independent reviews with the goal of restoring business confidence by implementing reforms to improve the quality of corporate reporting.
The Government is consulting on plans to modernise the country’s audit and corporate governance regime.
The consultation builds on the recommendations of three recent independent reviews with the goal of restoring business confidence by implementing reforms to improve the quality of corporate reporting with the aim of: 1. making directors of the country’s biggest companies more accountable; 2. reinforcing investor and public confidence in the audit process; and 3. diluting the supremacy of the ‘big four’ accountants as auditors of FTSE350 companies.
The collapse of various big-name companies, such as Carillion, Thomas Cook and BHS, has had a serious impact on confidence in corporate governance and resentment from the British taxpayer. The proposed reforms aim to drive up quality and standards in the market by giving investors, employees and consumers a more accurate picture of the health of a company.
The Government intends to expand the definition of Public Interest Entities (PIEs) so that its proposals apply to large businesses of public importance regardless of whether they are admitted to trading on a regulated market. The government is consulting on alternative approaches to identify the companies which will be captured by the new definition and this is most likely to align to:
(i) the test to identify those large companies that are already required to include a corporate governance statement in their directors’ report; or
(ii) the narrower test which incorporates the threshold for additional non-financial reporting requirements for existing PIEs and large companies with both: (a) over 500 employees; and (b) a turnover of more than £500 million.
The Government consultation includes proposals to:
There is a clear political purpose behind these reforms; not just to save the public purse and ‘build back better’ but to help identify those companies that can differentiate themselves by being more accountable, transparent and, therefore, inherently more trustworthy. The proposals, in whatever form they are eventually enacted, will undoubtedly impact the companies to which they apply but the resulting ripples can also be expected to have an impact on customers, suppliers, investors and other stakeholders with an interest in the business affected.
The consultation will end on 8 July 2021 and primary legislation is expected to follow thereafter.
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