ShareSoc director Cliff Weight co-signed a letter published in the FT.
“In a perfect world for users of company accounts, reform of the UK’s audit and corporate governance regime would include a UK version of the Sarbanes-Oxley Act.
This US law requires chief executives and finance directors to sign up to the truthfulness of material facts, and external audit of the effectiveness of internal controls.
As your report notes (“Audit regulation shake-up to be diluted”, Report, May 31), long-awaited measures will instead be implemented via the non-mandatory corporate governance code. However, since a UK “Sarbox” was never the government’s preferred option, it is time to make the best of second best.
Encouraging signs include the provision that boards will have to make a statement about the effectiveness of internal controls, which are crucial to trust in the numbers. It is an open goal for them to use a Sarbox-style benchmark for this assessment and to seek external audit. The new audit and assurance policy, which investors can influence, is the obvious vehicle for this.
Another antidote to pessimism is that the Financial Reporting Council has been sharpening its supervisory teeth ahead of becoming the Audit, Reporting and Governance Authority (ARGA). While impatience persists about the speed of enforcement, some headline-grabbing fines have been imposed on auditors this year.
ARGA will have new powers to investigate and sanction directors, although the acid test is the will to use them.
Neither the Insolvency Service, which can ban directors, nor the Financial Conduct Authority has shown much by way of teeth in enforcing the Companies Act or listing and disclosure rules.
The abiding concern is that entrusting progress to boards means that the good ones will embrace reform and the bad ones will not. ARGA will be in a stronger position to pursue the latter.
It would have preferred to do so under a Sarbox-style regime and that should remain an option.
With Arga’s remit extending to audit market competition and a multi-stakeholder audience, the further risk is that its purpose — to deliver high-quality auditing, corporate reporting and governance — will be diluted.
Fellow, CFA Society of the UK
London EC3, UK
Chair, UK Shareholders Association
Chair, Corporate Reporting Users’ Forum UK