Improving trust and building confidence
The pandemic and the pressures it has placed on business resilience has underscored the need for robust and transparent company reporting.
As a result, progress on audit and corporate governance reform has become more, not less, urgent.
Our overall position remains that we support corporate governance and audit reform that is in the public interest, that improves trust in business, that builds confidence in the UK as a leading capital market and strengthens its position in the global economy.
A critical juncture
The audit and corporate governance debate reached a critical juncture with the 2021 White Paper and consultation on Restoring trust in audit and corporate governance, published by the Department for Business, Energy and Industrial Strategy.
The White Paper brought together the major recommendations from the Competition and Markets Authority (CMA), Brydon, and Kingman reviews into a package of proposals. It was the focus of much discussion and engagement across the profession and the broader corporate reporting system.
As our response to the consultation makes clear, we welcomed and supported the majority of the proposals put forward.
We see it as a once in a generation opportunity to protect and enhance audit quality, reform the whole of corporate reporting in the UK, build trust in business and instil confidence in the UK as a leading capital market.
Alongside our written response, we engaged widely with policymakers, regulators, investors and companies to share our thinking on the proposals and encourage broad participation in the discussion.
Audit plays a critical role in the business environment, but change to audit firms is not a silver bullet on its own. Having each of the different market participants play their part is the surest way to drive improvement.
Establishing an overarching vision for corporate reporting – both for today, but also a future where reporting will need to address a wider range of areas and an increasingly diverse group of stakeholders - will help to engage all participants, ensure they are going beyond minimum requirements and embracing the opportunities that this debate presents.
Government is now in the process of evaluating the responses to its consultation and will need to put many reforms into legislation. Alongside this the regulator is growing into the body it needs to become to supervise this new regime. We will continue to engage with both as they do this.
But there is much that the market – companies, investors and auditors – can do proactively to position themselves for this new future.
As a firm, we have already taken significant steps in this spirit. On 1 January 2021 - five months earlier than required - our independent Audit Governance Board (AGB) launched, with our Audit Non-Executives and chair Baroness Ford bringing a wealth of experience.
They provide independent advice, challenge and oversight to our audit business and processes. These include challenge in important areas like audit quality and partner remuneration, and have already begun making a positive impact on our business.
Alongside this, we decided to move forward with the majority of the measures required to operationally separate our Audit & Assurance business from the rest of the firm from 1 June 2021, well in advance of the Financial Reporting Council’s deadline in 2024.
So, as well as the creation of the Governance Board for our newly ringfenced Audit & Assurance business, we have developed clear policies and processes around the scope of work that can be provided within the ringfence, and our approach to meaningful and transparent reporting for this business.
The global outlook
The eyes of the world are on the UK as it goes through this process of reform.
Throughout this debate we have engaged with Deloitte member firms around the world to share updates on the direction of reforms in the UK, the measures we are putting in place and the implications these may have in other markets.
In particular, we have seen a keen interest in the UK debate from colleagues in South Africa, the Netherlands and Australia, and there is a growing focus on the debate at the EU level.
While each market comes at this from a different starting point and with different forms of regulation and governance, there is significant interest in what the UK seeks to achieve.
This presents the UK with a key opportunity - to set the pace of change and be an example of best practice for other major capital markets to follow.
Reforming our audit product
Reform isn’t just about how our business operates, it is also about evolving the audit product to ensure it best serves the needs of stakeholders – both those within the corporate reporting world and wider society.
Sir Donald Brydon’s review set out a bold vision of a more purposeful audit product – one that assures and informs – and that has been the standard we have set in how we further develop and strengthen the audits we conduct.
As with operational separation, we have engaged in the debate and shared our views, but rather than wait, we have taken a proactive approach to make the changes we can right now.
This has included measures to develop a deeper understanding of key business model risks, bringing in additional specialists to inject new and different expertise into the process of an audit and increasing training around increasingly critical areas such as fraud, viability and climate. For these reasons, we believe the audit and assurance profession will continue to be one of the most attractive career paths in the market.
There is still a long and complex path ahead as proposals translate into tangible reform and it may take a number of years for legislation, regulation and voluntary reforms to fully bed in.
But we will maintain the same outlook and position as we have thus far: recognising the need for reform, doing what we can - as soon as we can - to make changes ourselves and bringing the wider profession, companies, investors and broader stakeholders together to build trust and meet society’s expectations.
Our aim is to build on the strength of our whole firm, and our multi-disciplinary business model, to provide a high quality, trusted and resilient audit and assurance service that serves the public interest.
+44 20 7303 2636 | Email Stephanie