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The government is preparing to omit a much delayed overhaul of the UK’s audit and corporate governance regimes from its programme of flagship legislative reforms for the coming year.
The expected absence of legislation to underpin the overhaul in November’s King’s Speech, which will set out the government’s reform priorities for 2023-24, would mean that the changes are unlikely to be implemented before the next general election.
Ministers had pledged to shake up the audit and corporate governance regimes after scandals at companies including retailer BHS in 2016 and outsourcer Carillion in 2018, but there have been repeated delays to the legislation.
The proposals include replacing the Financial Reporting Council, the accounting watchdog, with a more powerful regulator called the Audit, Reporting and Governance Authority.
The changes would also classify about 600 additional private companies as “public interest entities”, resulting in tighter regulation.
But the reforms are not expected to be included in the King’s Speech, according to people briefed on the situation.
One government insider said “wholesale reform” was unlikely to make it on to the government’s legislative agenda.
“There are some measures we can take using secondary legislation to implement some of the reforms,” added this person.
“We are still keen to do it — the government isn’t backing off — but it’s the usual question of parliamentary time.”
Officials at the Department for Business and Trade, which is overseeing the reforms, have said in private that the shake-up is not a political priority, although it was possible this could change, said another person with knowledge of the situation.
Senior figures at the FRC have expressed frustration about the likelihood of further delays with the reforms, said several people familiar with the watchdog.
The FRC was now planning on the basis that the beefed-up regulator may not be up and running until 2026 or 2027, added one person.
The government said in the Queen’s Speech last year that it would publish draft legislation to underpin the audit and corporate governance reforms during the current parliamentary session.
Labour MP Darren Jones, chair of the House of Commons business and trade committee, said in a letter to business secretary Kemi Badenoch last week that the panel was “disappointed” that the government had not unveiled the legislation given “the end of the session is now only weeks away”.
The FRC doubled in size to almost 450 staff in the past four years as it imposed record fines on accounting firms for poor quality audit work and consulted on an updated corporate governance code for listed companies.
When asked this week about the impact of repeated delays in introducing the reform legislation, acting FRC chief executive Sarah Rapson told the Financial Times: “There are areas where we are not able to make progress.”
She said that without the legislation, the regulator was unable to take on a bigger role in policing directors of companies or introduce measures to increase competition for the Big Four accounting firms — Deloitte, EY, KPMG and PwC — by making them share audit work with smaller rivals.
A government spokesperson said: “The government remains committed to improving audit and corporate governance in the UK.
“Reform is already under way, including the Financial Reporting Council transforming the way it works, consulting on changes to the corporate governance code, and possessing more powers to ban inadequate auditors from reviewing large companies’ accounts.”
The FRC said it “continues to appropriately plan for the creation [of the Audit, Reporting and Governance Authority] when legislative time allows”.
It added that it was “pleased with the strong stakeholder support for the ongoing work of the FRC to further strengthen corporate Britain”.
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