King’s speech – update on the audit and corporate governance reform agenda

In the King’s Speech, which sets out the government’s legislative agenda for the upcoming parliamentary session, the government announced that it intends to put forward a draft Audit and Governance Reform Bill.

In May 2022, the Conservative government published the response to its March 2021 consultation paper Restoring trust in audit and corporate governance (read more on our blog here). It confirmed that it intended to take forward many of the reforms proposed in the consultation, though some in a modified form. A number of the reforms, including the creation of the Audit, Reporting and Governance Authority (ARGA) as the successor regulator to the Financial Reporting Council (FRC), require primary legislation. However, in the last parliament, no draft Bill was published or consulted on, and it was not included in the King’s Speech in November 2023. Notwithstanding this delay in the creation of the ARGA, some aspects of the governance reform are already being taken forward, for example through amendments to the UK Corporate Governance Code (read more on our blog here).

The briefing notes accompanying the 2024 King’s Speech say that the proposed draft Audit and Governance Reform Bill will, among other things:

• replace the FRC with a new statutory regulator, the ARGA;

• amend the definition of Public Interest Entity (PIE) to include the largest private companies, bringing them in scope of the ARGA’s new and expanded powers; and

• give the new regulator powers to investigate and sanction company directors for serious failures in relation to their financial reporting and audit responsibilities.

The briefing notes refer to the proposed Bill as a “draft” Bill, rather than a Bill, which is usually an indicator that it may not be published in this parliamentary session (i.e. the next 12-18 months), acknowledging that further consultation and background work is necessary before the Bill can be drafted.