Brydon Review Report on Audit

The Department for Business, Energy & Industrial Strategy (BEIS) published the final report of the independent review by Sir Donald Brydon into the quality and effectiveness of audit in December 2019.

In December 2018, the Government asked Sir Donald to lead an independent review into the UK audit market in response to the perceived widening of the "audit expectations gap", that is the difference between what users expect from an audit and the reality of what an audit entails.

The Brydon Review recommends wide ranging, fundamental reforms in relation to the UK's current audit model, including:

• Audit purpose: adding a definition of the purpose of audit to the Companies Act 2006, reflecting its role in establishing and maintaining "deserved confidence in a company".
• "True and fair": the replacement of "true and fair" in the Companies Act 2006 and ISA (the standard to which all accounts must be prepared) with "presented fairly, in all material respects" to better reflect that accounts contain many estimates and assumptions.
• Going concern: replacing the current mandatory going concern statement (all companies, under accounting standards) and viability statement (for premium listed companies, under the UK Corporate Governance Code) with a 'resilience statement' requiring directors to focus their minds on short term survival, medium term reliance and long term threats to resilience.  
• Distributable reserves: where it is likely that distributable reserves are similar in size to a proposed dividend, that dividend can only be recommended by the directors if the level of the distributable reserves is established, and audited.

The Government indicated in briefing notes accompanying the Queen's speech in December 2019, the day after the Brydon Review published its recommendations, that it intends to develop proposals on company audit/corporate reporting, following the Kingman, Competition and Markets Authority and Brydon reviews of the audit sector in the last 18 months.