Proposed Audit Reforms Explained by Audit Partner
The government promised to go ahead with reform to the audit market in the Queen’s speech in May 2022, with plans to release a draft Bill with the aim to rebuild trust in the UK’s audit, corporate reporting, corporate governance system and the insolvency regulatory framework. The draft bill covers a range of reforms:
•The Financial Reporting Council will be replaced by a new statutory regulator, the Audit, Reporting and Governance Authority (ARGA) to protect and promote the interests of investors, other users of corporate reporting and the wider public interest
•It will aim to increase competition, ‘resilience and choice’ in the audit market by supporting the growth of challenger firms to reduce the dominance of the Big Four audit firms, giving businesses greater choice and making the market more resilient
•It has also committed to introducing managed shared audit, which will see audit work shared between a primary auditor, likely to be a Big Four firm – PwC, Deloitte, EY or KPMG – and a smaller audit firm
•Definition of ‘public interest entities’ will be extended to recognise the public interest in companies of this size and enforcing directors’ financial reporting duties, to supervise corporate reporting, and to oversee and regulate the accountancy and actuarial professions.
Source: Accountancy Daily
Since the announcement on 10 May, some of the above key measures have been diluted. We will await the draft Bill to analyse how much it deviates from the above.
Proposed Audit Reforms Explained
Cardens’ Audit Partner Hannah Doherty explains what the affect of these proposed measures are and what they could mean for the audit services that you’re familiar with:
As a result of the above changes, we do not envisage a change to the audit process our clients currently receive. This is, however, a big step towards opening up the audit market to medium and SME audit firms which is a long overdue and welcomed change.
For many years, there has been a misconception that only larger firms can do a ‘proper audit’. As such, a well-known firm’s audit opinion adds gravitas to the opinion. In fact, medium and SME firms produce good quality audit files and can offer a more focused audit which adds value to the client. All audit firms are subject to the same level of scrutiny and challenge from the regulators to ensure the quality of the audits.
We look forward to increased opportunities within the audit market both for private and public sector entities.
We’re here to answer your questions
You may be wondering whether the audit reform measures outlined in the Queen’s speech may affect the way you receive our audit services, or whether they will change the way we work on your account. If you have any questions, your usual Cardens audit team are here to help.
If you’re wondering why you need an audit or why you should have one, take a look at our audit services page.