The Labour government has announced its intention to advance the long-awaited reform of audit and corporate governance. This announcement marks a pivotal moment for businesses and the broader financial ecosystem in the UK, with substantial implications for risk assurance professionals.
The push for reform has been driven by a series of high-profile corporate failures and scandals that have exposed weaknesses in the current regulatory framework.
The existing Financial Reporting Council (FRC) has been widely criticised for its perceived lack of authority and effectiveness in enforcing compliance and accountability among corporations and their directors.
Introduction of the Audit, Reporting and Governance Authority (ARGA)
Under the new reforms, the FRC will be replaced by the Audit, Reporting and Governance Authority (ARGA).
This new governing body will be endowed with enhanced powers and responsibilities, aimed at strengthening the oversight of companies and the pursuit of directors who fail to meet their obligations.
An essential component of the reform is the emphasis on Internal Controls Over Financial Reporting (ICFR). Strengthening ICFR is crucial in preventing financial misstatements and fraud. The new regulatory framework will likely require companies to implement more robust internal control systems, subject to regular evaluation and reporting.
Implications:
Implications for Risk Assurance Professionals
For those of us working in risk assurance, these reforms present both challenges and opportunities:
The Labour government’s pledge to reform audit and corporate governance represents a transformative step for the UK’s business environment. The establishment of the Audit, Reporting and Governance Authority (ARGA) and the focus on ICFR and ESG/Net Zero commitments are set to enhance transparency, accountability, and sustainability across the corporate sector.
For risk assurance professionals, these changes underscore the need to stay ahead of regulatory developments and to provide strategic guidance that supports compliance and promotes long-term corporate resilience.
Companies need to be ahead of the reform and look to implementing these risk and / second-line functions. We are seeing an increase in demand for roles outside of the normal Internal Audit roles and functions.
If you are looking to build or add to your risk function, give us a call. We’ll happily be a sounding board to talk through your options.