The winding down of the Financial Reporting Council cannot be allowed to halt progress

Few informed observers were surprised when the government’s ambitious package of corporate governance reforms, including a shake-up of the UK’s audit regime, was omitted from the King’s speech last November. Given that the marathon race towards the next general election has already begun in earnest, the long-trailed plans will almost certainly not be enacted during the current Parliament.

More delays likely

For the protracted lead up to that election – likely to be held in the autumn or winter of 2024 according to political pundits – the topic of audit reform has been shelved. Although it may be self-evident that this issue is very unlikely to move the hearts and minds of many swing voters, the importance of audit reform, including a re-invigorated regulator with powers to investigate and impose meaningful sanctions, means that we should see it back on the table soon after the last votes are counted.

But several media reports have suggested that Department for Business, Innovation and Skills officials privately indicate that the reforms are not a ‘political priority’. Given that a crowded parliamentary timetable will inevitably result from the formation of a new government, it would therefore be reasonable to deduce that we may well not see any reiteration of the current audit reform programme until 2027 at the earliest.

Adding weight to this suggestion, a recent press release from the Financial Reporting Council (FRC), setting out its priorities for 2024/5, made no reference to the Audit, Reporting and Governance Authority (ARGA) roll out.

However, another government press release on cutting red tape gives cause for hope.

Published last October, this release together with subsequent updates, does suggest that reform will still happen because a consensus on the idea exists on both sides of the political aisle, as evidenced by their respective public statements.

If the issue were once again kicked into the long grass by the Conservatives, should they emerge as electoral winners, sceptical commentators would inevitably point out that it simply continues an established pattern: government legislation to deliver the ARGA has been repeatedly delayed by six successive business secretaries over the past five years.

By contrast, the opposition Labour Party has already committed to passing the long-awaited legislation on audit and corporate governance reforms should it form the next government instead. In September 2023, shadow business secretary Jonathan Reynolds told the FT that Labour would deliver the required legislation to create the new ARGA regulator as a replacement for the FRC.

But broken promises from both sides of the political divide have often been made with remarkable regularity over time. To make sure that whichever party is next in government actually delivers on primary legislation enacting audit reform over the line this time, it is worth recalling why reform is so essential.