The Government recognise the role that audit plays in the effective functioning of the UK’s financial markets and broader economy.
To help meet our ambition that the UK should become the best place in the world to work and to grow a business, we must take forward reform of audit. This will include reforming audit, the audit regulator, and the audit market. Change would affect a large number and a wide variety of companies, firms, and interests; but it is clear that there is a need for truly long-lasting and effective change.
I want to see the UK leading the world in the next phase of improvement for corporate governance and audit. In the first quarter of next year—when I have considered Sir Donald Brydon’s recommendations—I intend to bring together all relevant elements of reform in order to take that forward.
I am already working to create the new audit, reporting and governance authority, to replace the Financial Reporting Council. I have started with appointing new leadership at the Financial Reporting Council, who are driving a new vision and culture for the regulator. They are now implementing those recommendations made in Sir John Kingman’s excellent report that are not contingent on legislative change.
Future reform will cover not just the function of the regulator, but also the purpose and function of the audit market, and audit itself. I intend to bring forward an ambitious and coherent programme of change that drives up quality, resilience and choice. It will include proposals on the function and oversight of audit committees and new internal control arrangements within businesses; on the responsibilities of boards and directors; on how both investors and regulators can better hold companies and their auditors to account; and to reduce the reliance on a few large audit firms for the provision of audit.
All of those factors must be and will be assessed and weighed together, so that the whole package is coherent and effective. As recognised by the Business, Energy and Industrial Strategy Committee, whose work on audit I welcome, some reform will require radical action in order to ensure that it is meaningful and enduring, and that it fully addresses the very real concerns that we all share with the current state of the market.