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Disappointment clouds Queen’s Speech

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Audit reform, employment rights, economic crime defences and insolvency all featured in the legislative agenda set out by the government on Tuesday, but accountants found little of substance to chew on.

11th May 2022
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Expectations were low for the Queen’s Speech this week, but the presentation still managed to underwhelm much of the accounting world.

Government advisers spent a week briefing the media that long-awaited reforms to the audit sector wouldn’t feature among the nearly 40 laws proposed to be passed in the new parliamentary session. 

There was no mention of audit or accounting laws in the list read out by Prince Charles, filling in for Her Majesty, but notice of a draft bill did make it into accompanying documents pushed out by Number 10.

Audit reforms

Less than two pages of the 140-page document are given over to the Draft Audit Reform Bill, with no timeline or further detail beyond what is already known.

“First, the proposed scope of change is modest, and in particular it constitutes a missed opportunity to address wider issues in corporate governance,” said Michael Izza, ICAEW chief executive. “This might well end up as the lop-sided reform we have consistently warned against,” he added, calling the proposals “disappointing”.

No surprises

The main parts of the bill include the creation of a new regulator, the Audit, Reporting and Governance Authority (ARGA) to replace the Financial Reporting Council (FRC), and the introduction of shared audits. Challenger firms will carry out a share of the work on large-scale audits, the government said.

“This will improve the quality and usefulness of audit; and boost resilience, competition, and choice in the audit market,” a government spokesperson said. There was no further detail on how the Big Four audit firms and their smaller rivals will work together.

To avoid a repeat of major collapses where erroneous accounting played a factor in the demise – such as outsourcer Carillion, travel stalwart Thomas Cook, retailer BHS and others – the government is widening the definition of “public interest entities” to include the largest private firms. 

New legislation for insolvency practitioners is also forthcoming, the government said, targeting corporate governance of firms in or approaching insolvency so that asset stripping can be more effectively tackled. It did not add any further detail.

Get on with it

Also “disappointed” was the Chartered Institute of Internal Auditors (CIIA), who told the government to hurry up.

Ministers have not yet responded to the business department’s Restoring trust in audit and corporate governance consultation document, published over a year ago, which prompted a warning from John Wood, CEO of CIIA.

“We believe putting the audit regulator on a statutory footing with the legal powers it needs to do its job effectively, is vital to restoring trust in audit and corporate governance,” Wood said. “However, while this is a step in the right direction, we are somewhat disappointed that the important proposal for stronger internal company controls may now not be delivered by legislation.”

The CIIA said the government must “get on and swiftly issue” its full response, “including full details on how it plans on progressing some of the other key proposals, along with a clear timetable for implementation”.

No clear timetable

Also missing was detail on widespread reform of actuarial regulation, which is expected when the FRC finally dissolves and oversight shifts to the ARGA.

“We are disappointed that the government has not committed to a clear timetable for the reform of actuarial regulation in the Queen’s Speech,” said Louise Pryor, president at the Institute and Faculty of Actuaries. “However, we are hopeful the proposed draft legislation will be published shortly. This will, at least, keep progress moving on reforms to the Financial Reporting Council and actuarial regulation.”

Experts said there is little chance the bill will pass in the present Parliamentary session, and it is not likely to do so in the next window. 

“Three major independent reviews, a white paper and many public consultations on from the collapse of Carillion and it seems that we are still, literally, years away from seeing new legislation on the statute book. It is not too late for the government to give this the priority it deserves,” said Izza.

Companies House reforms

Elsewhere in the Queen’s Speech, the government repeated its intention to overhaul Companies House by announcing it will legislate through the Economic Crime and Corporate Transparency Bill during this parliamentary session.

How compliance will be enforced is yet to be revealed, but a new regulatory regime is expected to be more robust and potentially carry penalties for breaches, according to Neil Williams, deputy head of complex crime at Reeds Solicitors.

“Effectiveness will require investment however, so funding will be a key issue to achieve stated aims, otherwise the new data storing fortress will quickly crumble,” he added.

There has been strong and vocal pushback from the accounting sector on proposals to force small and micro businesses to publish more information on Companies House. 

And again, concerns over the glacial pace of official business have been aired, with experts reminding lawmakers how critical rapid reform of the much-abused public register of companies is.

“This legislation needs to be introduced quickly and there are some issues that need to be resolved before the Bill reaches the Statute Book,” said Christina Fitzgerald, president of insolvency and restructuring trade body R3. 

Loopholes still open

Commentaries also criticised proposed employment legislation regarding the Single Enforcement Body (SEB) for workers’ rights, which did not feature at all. 

“It’s unfathomable as to why this government has not prioritised the creation of the SEB, and the regulation of the umbrella company industry as well as other repugnant practices related to employment rights, such as slavery,” said James Poyser, CEO inniAccounts. “It delivers a brutal message of indifference to hard-working, self-starters from gig economy workers to consultant GPs and private sector contractors.”

Off-payroll reforms have made the employment supply chain “brittle and unfit for purpose” at a time when businesses are desperate for less red tape, Poyser added.

"The loopholes in the law, which allow this exploitation, desperately need to be closed and the creation of the SEB would have been a good step towards this,” said Rebecca Seeley Harris, chairperson of the employment status forum. 

The repeated assurances from ministers in recent months that the Employment Bill would be introduced when Parliamentary time allows, suggests that this could be introduced in 2023. Said John Harding, head of employment tax at PwC UK. “Employers and employees will continue to be left in limbo as to what the government's intentions are going forward until then,” he said. 

Post-Brexit financial services

Another new programme announced was the Financial Services and Markets Bill, which builds on the first set of laws put in place to amend the UK’s regulatory regime having split from the EU.

“This will be crucial to illustrating a more targeted approach to money laundering and fraud – which is on a sharp increase – while also enabling more meaningful growth of the entire financial sector, ultimately, maintaining and enhancing the UK’s position as a global financial services leader,” said Dr Henry Balani, global head of industry and regulatory affairs for Encompass Corporation.

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