Through the first half of 2021, the government ran a consultation into potential changes they would make to the current systems of corporate governance and auditing they have, which could have consequences for the accountancy world and accountancy recruitment.
The consultation, entitled Restoring Trust in Audit and Corporate Governance, goes further than many audit reforms have in the past, with an explicit focus on regulatory powers over audit committees, measures to prevent fraud, corporate governance and internal control reporting.
These proposals place greater emphasis on the role of company directors and boards along with the greater requirements put on the shoulders of auditors themselves.
These proposals, if they translate into legislative change, could have major implications for accountancy. Here are just some of the ways we could see this change manifest.
Changing The Definition Of Public Interest Entities
The list of public interest entities (PIEs) is set to expand tremendously due to a combination of not only these reform proposals but a potential revision to the definition in the International Code of Ethics for Professional Accountants.
This could add new categories of businesses and not-for-profit entities to the list of PIEs, including universities and charities to the lists of businesses that would be included in PIE audits.
Revising Internal Controls Reporting
The UK is planning on introducing internal controls systems inspired by the Sarbanes-Oxley Act in the United States, a sprawling set of reforms created in response to the collapses of Enron and WorldCom in 2001 and 2002 respectively.
It provides greater accountability to company directors when it comes to their internal controls reporting, and shifts the ultimate responsibility for accuracy in financial reports, data integrity and security to them.
Enhances The Capacity To Fight Fraud
Directors of PIEs would under these new proposals be required to detail all the actions they have taken to detect and put a stop to fraud as part of their statement.
This requirement, as well as auditors receiving extra training on fraud detection and the ability to use AI-driven fraud detection tools, would make a difference.
A Proposed Corporate Auditor Body
There are several audit bodies in the UK, but one proposal in the reform consultation suggests that corporate auditors should be part of a distinct professional body, with the aim that their specialised knowledge could be pooled together to drive better audits.
Replacing Joint Audits With Managed Shared Audits
One of the biggest proposed policies is the end of joint audits, which would be instead replaced by managed shared audits that work better in the current legal and regulatory framework you see in the UK.
Whilst the work undertaken is similar, the responsibility and structure of the auditing would be in many respects fundamentally different.
Joint audits are where two audit firms take full responsibility for a group audit, each reviewing the other’s work and ultimately coming to a joint opinion.
On the other hand, shared audits are the responsibility of one auditor and they ultimately will have the final say on the audit opinion, and instead delegate some of the auditing components to another firm and review their work later.