The recent King’s Speech has unveiled a raft of legislative proposals set to significantly reshape the landscape for accountants and auditors across the UK. While the Draft Audit Reform and Corporate Governance Bill takes center stage, several other measures promise far-reaching implications for the profession.
At the heart of the proposed changes is the Draft Audit Reform and Corporate Governance Bill. This landmark legislation aims to address longstanding concerns about audit quality and corporate failures by:
- Establishing the Audit, Reporting and Governance Authority (ARGA) to replace the Financial Reporting Council, with expanded powers to investigate and sanction directors.
- Extending Public Interest Entity (PIE) status to large private companies, subjecting them to more rigorous audit requirements.
- Introducing a new regime to oversee the audit market, protect against conflicts of interest, and build resilience in the sector.
- Removing unnecessary rules on smaller PIEs to reduce regulatory burden.
The government notes that these reforms are crucial for enabling trust in major companies and underpinning growth. The bill aims to support long-term investment in UK companies and reduce the harm that financial reporting errors can do to businesses and communities.
“Audit reform has been severely overdue in the UK, yet repeated delays have sidelined it, despite the importance of it in promoting the UK as a great place to do business. ACCA has long called for this implementation, so to see it included in the King’s Speech as one of the first points of the speech is a huge step forward,” says Mike Suffield, Director of ACCA Policy and Insight.
“Legislation will place the planned new regulator, the Audit, Reporting and Governance Authority (ARGA), on a statutory footing and will set out clear expectations and accountability for Boards, management and auditors. The shift of the FRC to ARGA as a clear independent watchdog will strengthen the oversight of audit quality so that audit firms can be held properly to account, introducing changes that have been needed since the collapse of Carillion in 2018.”
Fiscal Transparency and Economic Policy
The Budget Responsibility Bill introduces another layer of scrutiny to fiscal policy. By mandating independent assessment of significant tax and spending changes by the Office for Budget Responsibility, the bill aims to reinforce market credibility and public trust by preventing large-scale unfunded commitments.
This new requirement for independent assessment could significantly impact how businesses and accountants approach tax planning and financial forecasting. Accountants may need to develop more robust economic modelling skills to anticipate the potential outcomes of these assessments.
Furthermore, this increased transparency could lead to more stable economic conditions, potentially reducing uncertainty in financial markets. However, it may also slow down the implementation of fiscal changes, requiring businesses to be more agile in their financial planning. Accountants could find themselves playing a crucial role in helping clients navigate these new fiscal realities, interpreting OBR assessments, and adjusting financial strategies accordingly.
This bill also underscores the growing importance of public sector accounting expertise, as government departments will likely require more sophisticated financial analysis to meet these new standards.
New Investment Landscapes
The establishment of the National Wealth Fund, with its £8.3 billion capitalization, opens up new avenues for accountants in investment analysis and public-private partnerships. The fund will aim to generate £3 of private sector investment for every £1 it invests, focusing on clean energy and infrastructure projects.
The National Wealth Fund’s focus on clean energy and infrastructure projects signals a shift towards sustainable finance, which accountants will need to adapt to. This may require developing expertise in green accounting practices and ESG (Environmental, Social, and Governance) reporting.
The fund’s structure, involving public-private partnerships, will likely create complex financial arrangements that accountants will need to navigate. This could include new forms of risk assessment, valuation methods for emerging technologies, and specialised tax considerations for clean energy projects. Additionally, the fund’s aim to leverage private investment may lead to innovative financing structures, potentially creating opportunities for accountants to advise on deal structuring and financial modelling in these emerging sectors.
As the fund aims to catalyse investment across the country, accountants may also need to familiarise themselves with regional economic development strategies and local investment landscapes.
Digital Transformation and Data Management
The Digital Information and Smart Data Bill will have profound implications for how accountants handle and leverage data. Key aspects include:
- Enabling new, innovative uses of data while enhancing data protection.
- Creating Digital Verification Services, which may streamline identity verification processes for financial transactions.
- Developing a National Underground Asset Register, potentially impacting infrastructure accounting.
The government estimates that digital verification services could save around £800 million per year, indicating potential cost savings for businesses that accountants may need to factor into financial planning.
Wider Economic Reforms
Several other bills may indirectly affect accountants through their impact on clients and the broader business environment:
The Employment Rights Bill could lead to significant changes in how businesses manage their workforce and associated costs. Accountants may need to advise on the financial implications of new employment structures, such as the impact of banning zero-hour contracts or implementing new sick pay regulations. This could require developing expertise in labour cost modelling and compliance reporting. There may also be a need for more sophisticated payroll systems and processes to manage these new rights.
The Planning and Infrastructure Bill’s focus on accelerating delivery could create a surge in demand for accountants with expertise in large-scale project finance. This may involve more complex financial modeling, risk assessment for fast-tracked projects, and advising on new funding mechanisms. Accountants might also need to develop skills in assessing the financial viability of projects under new planning regulations.
The Great British Energy Bill could reshape the energy sector’s financial landscape. Accountants may need to develop expertise in public sector accounting standards as they relate to state-owned enterprises, as well as understanding the unique financial challenges of the renewable energy sector. This could include advising on subsidy structures, power purchase agreements, and the financial implications of grid integration for renewable energy projects. There may also be opportunities in carbon accounting and emissions trading as the clean energy transition accelerates
Preparing for the Future
As these reforms take shape, accountants will need to:
- Stay informed about legislative changes and their implementation timelines.
- Invest in continuous professional development, particularly in areas like data analytics, ESG reporting, and sector-specific knowledge.
- Prepare for increased scrutiny and potentially higher standards in audit work.
- Consider how to advise clients on adapting to new regulatory environments across various sectors.
The government emphasises that these changes aim to promote and secure the financial sustainability of companies and reduce the likelihood of financial collapse. For accountants, this signals a growing role in ensuring compliance and providing strategic financial advice.
As the government moves forward with these ambitious reforms, accountants across the UK will play a crucial role in shaping the implementation of these policies and ensuring the financial health and transparency of businesses in the years to come.