Michael O’Dwyer, Accountancy Correspondent at the Financial Times, led our discussion on audit and governance reform with Jeannette Andrews of Legal & General Investment Management, Catherine Bradley CBE, an independent board member, and David Herbinet, Head of Audit at Mazars.
Restoring trust in audit and corporate governance – 10 June 2021
The Centre for Audit Committee and Investor Dialogue took a look under the bonnet of the BEIS White Paper: Restoring Trust in audit and corporate governance. This live panel discussion debated the potential impact of the proposals from a business, investor, and audit perspective.
Key points of the full recording are signposted in the show notes below. You can also view shorter segments organised by topic.
0:10 Welcome and introductions
6:17 Panellist views on the consultation
11:30 Reporting on internal controls, non-financial data and ESG
Will the proposed internal controls reporting requirements significantly reduce the risk of corporate failure and what will it change for companies? In practice, how can we ensure the proposals promote the principles of reform and do not become a tick-box exercise? Is there enough in the consultation on ESG? Are standards around ESG assurance needed? What are the challenges?
22:38 The Audit and Assurance Policy
Is the suggestion of an Audit and Assurance Policy useful to investors? Is there need for more standardisation to ensure a consistent approach? Are investors already engaging with audit committees on audit and assurance? What could this look like in practice and how can we ensure dynamic dialogue? How would this impact the role of the auditor? Is there going to be more of a role for internal auditors?
35:22 A new resilience statement
How can directors give assurance that the company is able to operate on a five-year time horizon? Is it going to be helpful and stop companies from failing? How can this build on the viability statement and really add value?
42:45 Increased responsibilities for board members
The consultation proposes a substantial increase in the regulator’s powers over boards and more responsibilities for directors, irrespective of professional background. Are these proposals welcomed and will it change anything for most board members? Is there a danger that boards will become technocratic and lose the diversity of experience that non-executives bring? If there is increased regulation, should directors be paid more to reflect that risk?
54:23 Impact of UK reform on other countries
If the UK implements some of the proposals we’ve discussed here today, what will the impact be on global companies? Is there a risk of further divergence between the UK’s approach and that of other international jurisdictions? And does that cause headaches in terms of duplication and extra work for international companies in particular? Or are there valuable lessons to be learned in the UK that can be replicated in other countries?
56: 25 Audit market reform
The government has proposed managed shared audit, in contrast to the preceding CMA recommendation of joint audit. Is managed shared audit a positive development or a step backwards? Do the proposals go far enough? Do we need to be more ambitious with this reform? Are any concerns about quality and choice justified? Will shared audit add costs?
Should this set of proposals be seen as a focused set of strategic proposals to strengthen entrepreneurship and accountability or should we see this as a bag full of separate ideas strung together?
Are we making this too complicated? Are there other ways some of this could be introduced more quickly, rather than through legislation, but without leaving it to individual companies and investors?
It is proposed that directors are responsible to ensure that paying a dividend will not threaten the solvency of the business over the next two years. Is this reasonable or is it adding an additional layer of complexity?
Is there a particular concern or area where more clarification is needed on the proposals?
Is there a potential threat to board cohesion if individual directors become concerned about their liability and feel they are more strictly regulated than before?
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