BEIS committee MP calls for patience over audit reform

Richard Fuller MP, Conservative for North East Bedfordshire and Business, Energy and Industrial Strategy (BEIS) select committee member says the delay to audit reform is a result of the government being preoccupied with Brexit, a general election and the coronavirus pandemic.

Reform of audit was in the Conservative party manifesto for the 2019 general election, but there has been no legislation forthcoming despite the publication of the Brydon report in December 2019. Fuller says we must bear in mind the sheer size of the proposed reforms which has included three separate reviews into the beleaguered sector.

“Part of the reason for the delay is just the broader political agenda – angst over Brexit, a general election, a new government and the pandemic.

“Then secondly, there’s been a lot of work done. It’s such a comprehensive set, three substantial reviews each with their own recommendations. That’s a very large amount of potential changes to policy for the department to think through.

“This was not a quick meal. This was a seven-course buffet,” says Fuller.

Fuller points to the fact that audit reform was a key policy in the Conservative party manifesto for the 2019 general election. He is confident that during this Parliament “it will get done”.

The spotlight has once again been forced upon the audit sector after the Wirecard scandal brought EY’s conduct into question, while earlier this month, the Financial Reporting Council (FRC) announced Deloitte would face a possible £15m fine over their audit of UK software company, Autonomy after “serious failures” were found.

And last week, the FRC released its latest audit inspection results which found that only two thirds of audits were up to the required standard.

In a statement, the FRC’s executive director of supervision, David Rule said: “We are concerned that firms are still not consistently achieving the necessary level of audit quality. While firms have made some improvements and we have observed instances of good practice, it is clear that further progress is required. The tone from the top at the firms needs to support a culture of challenge and to back auditors making tough decisions.”

The FRC has been vocal in calling for the government to move quickly to make the legislative changes necessary to put the new Audit, Reporting and Governance Authority (ARGA) on a statutory footing, but has meanwhile pressed ahead with the reforms they can make now. Earlier this month for example, they laid out plans for the operational separation of audit.

Fuller suggests the FRC is eager to see legislation more to protect themselves against criticism, rather than because they are incapable of making important changes to audit regulation.

“There’s quite a lot that the FRC knows it can do that doesn’t require primary legislation… I can understand their act, particularly as the FRC was in for some criticism, that they will want to have that comfort that they’re working in association with the guidelines, that reassurance that they’re going in the right direction,” he says.

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