Audit reform plans ‘ready to go’ but government delays now holding UK back, accountancy chief warns
The UK government’s failure to overhaul the country’s audit sector risks seeing Britain lose its position as a world-leading investment hub, the head of the Institute of Chartered Accountants in England & Wales has warned.
ICAEW chief Michael Izza told CityAM continued delays to the UK’s planned reshaping of the country’s audit sector could see foreign investors lose confidence in Britain as a trustworthy destination place to put their funds.
“We’ve got to recognize we’re in a competitive situation,” Izza said. “We want people to be confident they can invest here”.
The UK’s planned shake up of the audit industry is intended to boost audit quality, amid concerns about the trustworthiness of companies’ financial statements.
The plans came in response to a series of high-profile audit scandals involving top British companies – including Carillion, Patisserie Valerie, and Thomas Cook – that have undermined trust in auditors’ abilities to spot red flags.
The reforms, which were first put forward in 2018, are set to see Britain’s Financial Reporting Council (FRC) accounting watchdog replaced with a new, more powerful regulator – called the Audit, Reporting and Governance Authority (ARGA).
The overhaul is also set to see the government take on the Big Four accounting firms – EY, PwC, KPMG, and Deloitte – with a view to increasing competition in the sector and boosting the role of smaller, challenger firms.
In boosting competition in the sector, the government could force the Big Four to share work with smaller auditors, and also cap the amount of high-level audits the world’s four top firms are allowed to carry out.
Izza, however, warned that repeated delays to the actual implementation of the reforms could see momentum die down, as he argued the overhaul “is just something we need to get done”.
“It just feels that someone needs to grab this by the scruff of the neck and move forward,” Izza told CityAM as he noted the planned reforms “are pretty much ready to go”.
“This is now waiting for politicians to effectively push whatever button it is they push, and slot it into the timetable,” the accounting chief said. “It’s just a question of priorities”.
Izza, however, warned the overhaul is being held back by a lack of political will, as he argued other issues – such as the energy crisis, cost-of-living crisis, and war in Ukraine – have seen audit reform brushed aside.
The accounting chief noted the pressures currently facing UK businesses also risk seeing the reforms delayed. Critics of audit reform have argued the overhaul could hike audit costs and increase business overheads in a shift that could hit UK firms.
Izza, however, argued that putting the reforms in place would give businesses certainty in the regulatory environment. “Business hates uncertainty,” the accounting chief said.
The ICAEW boss also warned the upcoming election could further delay the planned reforms. He noted that as the UK heads towards a general election, the Conservatives will likely sharpen their focus on vote-winning issues over corporate governance and audit reform.
“It just isn’t going to get your blue wall seat voter excited,” Izza said, as he warned the Tory party’s focus on “crowd-pleasing measures” could see audit reform left behind.
The ICAEW head, however, said he has “great hopes” for Britain’s new business secretary, Kemi Badenoch, as he suggested the minister sees herself as a “problem solver” who could get audit reform done.
He noted the streamlining of the Department for Business, Energy, and Industrial Strategy (BEIS), which has seen it become the Department for Business and Trade (DBT), could also see audit reform rise up the agenda in the more sharply focused government department.