Policy Briefing — UK Restoring Trust in Audit Consultation
The UK government issued its Restoring Trust in Audit and Corporate Governance white paper on March 18, 2021, outlining sweeping reforms for directors, auditors, and regulators following the Brydon, Kingman, and CMA reviews.
Executive briefing: On 18 March 2021 the Department for Business, Energy & Industrial Strategy published a 232-page consultation proposing a new Audit, Reporting and Governance Authority (ARGA), enhanced director accountability, and strengthened audit and assurance standards for the UK’s largest companies. The reforms target Public Interest Entities (PIEs) and respond to failings at Carillion, BHS, and Thomas Cook.
Key proposals
- Regulator upgrade. ARGA would replace the Financial Reporting Council with statutory powers to direct changes to company reports, investigate directors, and oversee audit market reforms.
- Director accountability. Directors of PIEs could face civil penalties for breaching corporate reporting and internal control obligations, including new attestation requirements for internal controls over financial reporting.
- Audit market reforms. The paper proposes managed shared audits for FTSE 350 companies, operational separation of audit and non-audit practices, and assurance on alternative performance measures and resilience statements.
Implications for boards
- Audit committees. Chairs should begin mapping readiness for a resilience statement, audit and assurance policy, and managed shared audit requirements.
- Finance directors. CFOs must evaluate internal control documentation and potential Sarbanes-Oxley-style attestations covering financial and non-financial reporting.
- Nonprofits and large private companies. The consultation contemplates expanding PIE status to large private entities, requiring scenario planning for resilience disclosures and director accountability.
Action checklist
- Engage stakeholders on the consultation and draft response positions by the July 2021 deadline, focusing on audit scope and internal control attestations.
- Conduct a maturity assessment of internal control frameworks against the proposed UK Sarbanes-Oxley regime.
- Develop a roadmap for resilience statements, including reverse stress testing, supply chain mapping, and capital allocation disclosures.
Post-consultation outcome
In May 2022 the government published its Restoring Trust government response, confirming plans to legislate for the Audit, Reporting and Governance Authority (ARGA), new internal control attestations, and PIE scope changes while mandating a phased resilience statement regime.
By October 2023 the Department for Business and Trade withdrew the draft Companies (Strategic Report and Directors’ Report) (Amendment) Regulations 2023 to ease reporting burdens, stating that ARGA and audit market reforms would instead be taken forward through future primary legislation. Government cuts red tape to boost growth and productivity
Sources
- Restoring Trust in Audit and Corporate Governance consultation
- Government tackles big business audit failures with comprehensive reforms
- Restoring Trust in Audit and Corporate Governance: Government response
- Government cuts red tape to boost growth and productivity
Zeph Tech works with UK boards to pilot resilience statements, control attestations, and shared audit planning aligned to the Restoring Trust reform package.