“Serious questions” over government’s commitment to audit reform

“Serious questions” over government’s commitment to audit reform

Chief Executive of the CIIA, Dr Ian Peters MBE, has urged the government to pass the necessary legislation on audit reform, but hope of action is fading.

“Serious questions” over government’s commitment to audit reform

Chief Executive of the Chartered Institute of Internal Auditors (CIIA), Dr Ian Peters MBE, has urged the government to pass the necessary legislation for audit reform, writing an open letter to the Business Secretary, Andrea Leadsom MP.

Peters argued that new legislation is required to give the new audit regulator, the Audit, Reporting and Governance Authority (ARGA), the powers and authority it needs to do its job properly after it takes over from the Financial Reporting Council (FRC).

The outgoing Chief Executive of the CIIA said that the government’s failure to include any mention of audit reform in the Queen’s Speech raised “serious questions” over the government’s desire to reform the sector.

“The collapses of Carillion and others highlight the urgent need for audit regulator reform. The absence of the necessary legislation from the Queen’s Speech was a huge missed opportunity and has raised serious questions about the Government’s commitment to reforming the audit regulator,” Peters said.

“Whilst I appreciate that the government has been a little bit distracted with Brexit matters, there should be no further delay in delivering reform of the audit regulator.

“I have urged the Business Secretary to find parliamentary time without delay, to pass legislation which would give ARGA the powers it needs to do its job and help prevent future corporate collapses.”

In the letter to the Business Secretary, Peters urged the government to act quickly, setting out why reform was necessary and expressing their disappointment at the lack of action thus far.

“Given the recent corporate collapses, most notably Carillion, but BHS before it, and more recently Patisserie Valerie and Thomas Cook, we believe it is critical that the government now takes urgent action to replace the Financial Reporting Council with the Audit, Reporting and Governance Authority. Such reform is vital in order to strengthen the UK’s corporate governance framework, in helping to identify and prevent future corporate collapses, as well as restore trust and confidence in business,” Peters wrote.

Hope for reform fading

The disappointment of the CIIA follows developments in the past year where it seemed likely that reform would begin its passage through Parliament. In March 2019, the previous Business Secretary, Greg Clark MP said that, ‘the government intends to move swiftly to implement these reforms and overhaul the sector’. Yet seven months later no audit regulator reform legislation has been introduced in Parliament.

On 7 October 2019, a week before the Queen’s Speech, the current Business Secretary said, ‘where legislation is required, as with reform to the audit market, the Government remains committed to legislating as soon as parliamentary time allows.’

But the Queen’s Speech on 14 October 2019 did not contain any audit regulator reform legislation.

Internal audit must become “indispensable”

Whilst speaking at the Internal Audit 2019 conference, Peters also said that the internal audit sector had to adapt to remain relevant in the future.

“To make ourselves not just relevant, but indispensable, I believe as a profession, we must become more insightful, with far more of a strategic focus to the assurance we provide. In particular, not just looking at the major risks affecting the business in the immediate future, but also looking ahead at the new and emerging risks coming down the track,” he said.

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