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The Government has dropped a key bill which it promised would help prevent corporate scandals such as Carillion, BHS and Patisserie Valerie from being repeating.
The Financial Reporting Council (FRC), a financial watchdog, has also revealed it plans to drop many of the proposals it said would help strengthen company governance.
Richard Moriarty, chief executive of the FRC, said it would proceed with a “small number of the original 18 rules” and stop working on the rest. The decision, he said, was taken in view of the regulator’s new requirement to “support UK economic growth and competitiveness”.
Critics of the proposed rules have complained they would impose unnecessary restrictions on businesses and could hit the UK financial service industry’s competitiveness as it seeks to compete with New York, Frankfurt and other financial centres post-Brexit.
City minister Andrew Griffiths welcomed the FRC’s move, calling it a “pragmatic and proportionate” approach.
“The UK rightly enjoys a strong reputation for high governance standards but it’s important we don’t burden our best and brightest companies to the extent that it’s not a level playing field versus our international competitors,” he said.
The FRC will drop plans for company audit committees to have extra responsibilities for reporting on environmental, social and governance issues
The FRC said it plans to unveil the new code in January 2024 and will allow more time for the new rules to be implemented.
Last year, the regulator said it found that almost a quarter of major company audits it inspected required improvement.
Ministers promised the Audit Reform Bill after the Kingman inquiry into the Carillion collapse, which saw tens of thousands of workers lose their jobs as a result of audit failures. The inquiry called for reforms to strengthen audits and “restore trust” in wider corporate governance.
Proposals included stronger rules about how companies are run, backed up with a tougher audit regulator to police the sector in an effort to avert similar collapses.
Bruce Cartwright, of the Institute of Chartered Accountants of Scotland, said the move was a “huge blow to the interests of UK businesses and the public”.
“Again, we see lack of action by a government apparently committed to reform but again back tracking on those commitments. The result is to potentially undermine public trust in that as a business community, we demonstrate transparency in business and do the right thing.
“Dropping audit and corporate governance reform from the King’s Speech is a huge blow to the interests of UK businesses and the public. There is consensus among all the key players that these reforms are long overdue. UK businesses need a solid, regulatory environment to ensure good governance and to maintain the public’s trust.
“Once again, we urge the UK government to reconsider this decision. Audit and corporate governance reform can’t wait until after the next general election.”
Anne Kiem, of the Chartered Institute of Internal Auditors said dropping the Audit Reform Bill was “deeply disappointing”.
Corporate collapses linked to audit and governance weaknesses, such as BHS, Carillion, Patisserie Valerie, Thomas Cook and Wilko, have already cost tens of thousands of jobs, led to hundreds of retail store closures, hurt investors, cost people their pensions and impacted suppliers.”
“This legislation is urgently needed to put the audit regulator on a statutory footing with the legal powers it needs to hold company directors and audit firms to account when things go wrong. We need to safeguard our future economic prosperity by protecting jobs, growth and investors.”
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