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Read more informationLegal Update: Government white paper: Restoring trust in audit and corporate governance
The government issued its long-awaited white paper on restoring public confidence in audit and corporate governance yesterday. The government's goal is simple: to increase the consistency, authenticity, and transparency of information published by the largest corporations.
The proposals, which were prompted by a number of corporate failures, like Carillion, Thomas Cook, BHS, and Patisserie Valerie, as well as long-standing concerns about a lack of competition and resilience in the statutory audit market, take forward the majority of the recommendations of three government-commissioned independent reviews: the Review of the Financial Reporting Council (FRC) led by Sajid Javid; the Review of the Financial Reporting Council (FRC) led by Sajid Javid; and the Review
In its 233 sections, the consultation involves important, far-reaching, and, in certain instances, divisive changes, as well as 98 consultation queries. As a result, the regular time for submitting responses has been expanded to 16 weeks and will expire on July 8, 2021.
The government has issued an effects report, a compilation of stakeholder feedback to the government's original consultation on the CMA's Market Analysis recommendations, and a summary of how each of the three reviews' 150-plus recommendations were discussed in the White Paper or by FRC intervention.
Proposals for headlines include:
Internal management, dividends, and resource protection are all duties of the board of directors.
For Public Interest Entities, corporate transparency on resilience, assurance, and payment processes is needed (PIEs):
Increasing the oversight of corporate reporting:
Strengthening the ability of directors to be held accountable:
Intent and reach of audits - bridging the audit expectations gap:
Shareholder involvement and supervision by the audit committee:
Improving audit industry competitiveness, choice, and resilience:
Scope and timing:
The government aims to introduce audit legislation in stages, acknowledging the need of reform but also the need to manage new requirements on companies. Measures that may not have a significant influence on businesses, such as the creation of ARGA, can be implemented more rapidly. Changes that have a direct effect on companies may be phased in over time, with all needing interim plans. Larger firms, especially those with a premium listing, are likely to be subject to new criteria ahead of others, while emerging growth companies could be exempt from any of the new requirements for a period of time after an Initial Public Offering to ensure that they do not act as a barrier to pursuing a listing.
PIEs - actually, credit agencies, insurance undertakings, and others with shares accepted to restricted exchanges, such as the London Stock Exchange's main sector - are the subject of much of the plans. To ensure only the most economically important firms in the UK are caught, the government is recommending that the spectrum of this main category be expanded to cover the very biggest private businesses (one alternative sets the bar as low as those of more than 500 staff and a revenue of more than £500 million) and Target companies with a market capitalization of more than €200 million.
The timing of the amendments is unavoidably ambiguous: "as Parliamentary time permits."
There are major changes. Everyone would need to be carefully analyzed separately and together, especially to ensure there are no adverse effects and that the advantages exceed the costs. It remains to be seen if they regain faith in company and auditing, as well as giving investors the courage to invest in the UK, as the government hopes.