ICAEW’s was one of 570 responses to the BEIS white paper that delivered a deluge of comment to the government. This will take time to process but at some point soon, we are likely to see one of three outcomes: a comprehensive package of primary legislation, a mix of limited primary legislation with secondary legislation doing much of the legwork, or a regulatory package that is more compact and digestible. Hopefully, whichever approach is adopted, it will be pursued at pace and concluded in Q4 2021.

In the meantime, ICAEW is not resting on its laurels. There are key planks of the proposed reforms that ICAEW is seeking to influence at a senior level within BEIS and the FRC. 

“We continue to talk to member firms to develop our thinking on reform and are putting together projects – both shorter term and longer term – to influence the way these white paper proposals pan out,” says Nigel Sleigh-Johnson, ICAEW Director, Technical Strategy Accountability Group, which covers audit and financial reporting. “The government will have to consider the details of many of these proposals further and we're ready to help in various ways, such as convening stakeholders and facilitating debate. We are highly focused on how the proposals are taken forward and what the Institute might do to facilitate the implementation of workable and proportionate measures.”

Putting weight behind the Audit and Assurance Policy

Key policy areas behind which there is particular ICAEW heft include the Audit and Assurance policy. In its response, ICAEW put forward a proposal that investors and audit committees should be empowered to supplement the financial statement audit with targeted assurance of important areas. The Audit and Assurance Policy would confirm the extent to which the annual report and other information has been scrutinised, whether by the company auditor or other experts.

“We are putting our weight behind the Audit and Assurance Policy in particular,” says Sleigh-Johnson. ICAEW produced detailed proposals in advance of the white paper and is now seeking to demonstrate that the Audit and Assurance policy is practical and outline how it might work in practice. “We’re also liaising with other groups to ascertain what they think on key elements of the proposals and how we might work with them,” he adds.

Internal controls are a key plank

A second area that ICAEW is pursuing vigorously with policymakers relates to internal controls over financial reporting. This is another key plank of ICAEW’s response. It would like to see designated directors acknowledging their responsibility for establishing and maintaining adequate internal controls over financial reporting.

The Audit Committee Chair’s Independent Forum (ACCIF) is an important stakeholder in this area of reform, following the influential work that the organisation has been undertaking to explore options around reporting over internal controls. “This type of analysis is really only ever going to be pursued by those close to governance,” points out John Boulton, ICAEW Director, Technical Policy. “Understanding how an internal controls framework could be made to work in a UK context will be key. That needs to involve not only those charged with governance, but auditors too.”

As well as raising the question of whether directors should do more in relation to internal controls over financial reporting, explains Sleigh-Johnson, the BEIS consultation specifically asked whether auditors should be required to provide assurance on that. “We’ve been supportive of an assurance requirement and that's an important policy position we wish to pursue,” he points out.

ICAEW is also talking to BEIS about the resilience statement, another tenet of the white paper. “We want to have a voice in helping to make the resilience statement work in practice. The proposals need further development, but there’s no doubt that effective communication around resilience should be at the heart of reform,” says Boulton.

Further, ICAEW is willing to play a role in helping to develop and refine the legislation itself. “There should be some kind of forum for developing the legislation and we can help at this stage too,” says Boulton. The expertise is there. For example, in recent years Sleigh-Johnson and other ICAEW experts assisted with the development of detailed legislation implementing both the Non-Financial Reporting Directive and the UK IFRS endorsement regime. 

ICAEW has also been raising important overarching issues on the quality and effectiveness of the UK corporate reporting regime, including in its dealings with the FRC on the future of corporate reporting and with BEIS on the implementation of the TCFD proposals. “We have emphasised the importance of preserving the quality of the annual report and not allowing it to become unduly weighed down by disclosures,” says Sleigh-Johnson. “We need to make sure the annual report remains a suitable vehicle for investors to get the information they need.” 

He points out that ICAEW positions on corporate reporting have become more relevant than ever in the light of the BEIS white paper audit reform agenda. “First of all, directors have to produce the right information,” he emphasises. “You need good quality information and reporting before you can effectively assure anything.”

Holistic reform agenda

Importantly, ICAEW is considering the reform agenda in a holistic fashion, recognising the need to ensure it serves stakeholders better across the entire business landscape. This extends to Companies House reforms and efforts to improve the SME audit regime.

“We have that ability to step back and look at all these moving parts and see how they fit together,” says Sarah Dunn, Technical Manager in financial reporting. “We can identify corporate reporting crossovers and overlaps, we can join the dots, and we can point out issues that are not being addressed.” Importantly, ICAEW – given its wide-ranging membership – is uniquely placed to draw on a diverse and expert evidence base to help inform the next steps in a process of radical change that will shape the future of UK governance, reporting and auditing.

Listen to ICAEW Insights’ In Focus Podcast on the BEIS white paper reform: The BEIS White Paper – why do we need audit and corporate governance reform now?

The ICAEW Regulatory Board’s response to the BEIS consultation: Restoring trust in audit and corporate governance