The audit debate: moving ahead with reform
The past year has seen continued progress in the debate on the future of UK audit and corporate governance. While there is more for firms, government and regulators to do to maintain momentum, we have continued to embrace the opportunity reform brings and move quickly and proactively in playing our part.
A key milestone came in May 2022 with the publication of the government’s response to last year’s white paper. This was preceded by a commitment alongside the 2022 Queen’s Speech to introduce a Draft Bill enacting the reforms that require legislation.
The government’s response brought together the outputs of a number of major independent reviews into a package of proposals that will shape the future of UK corporate reporting and governance.
With measures to establish a new regulator, enhance auditor reporting, increase the responsibilities of company boards and broaden the scope of reporting, the reforms will have a widespread impact on auditors, company directors, regulators and investors alike.
This programme will be enacted over the coming years, through a mixture of legislation, action by the regulator – which has since published a plan on its transition from the Financial Reporting Council (FRC) to the new Audit, Reporting and Governance Authority (ARGA) – and by the sector itself.
We have engaged closely with government, stakeholders and regulators as this developed and will continue to play our part in shaping the audit and corporate reporting framework of the future.
Our role in reform
From Deloitte’s perspective, this debate is an opportunity to strengthen the UK’s corporate reporting system and rebuild trust in business – which is why we have emphasised throughout the need to move at pace and for proposals to translate into action.
It was in this spirit that we committed to acting quickly to enact changes to our own structure and governance. We were the first of the large firms to begin implementing the operational separation of our audit business and establish our majority independent Audit Governance Board to provide oversight of the firm’s audit processes, culture and approach to quality.
It has now been over 12 months since we started our transition to operational separation and 18 months since we launched our Audit Governance Board. The rigour and challenge this has brought has helped to make us a stronger and more focused audit and assurance business. Our annual Transparency Report sets out further details on our audit governance and processes that ensure we are focused on delivering high-quality audits.
Quality and people
The future of audit comes down to the people in our profession. Our people are the heart of our audit business and central to delivering quality audits that are fit for the future. Best-in-class technology is key to supporting their work, alongside investment in training to help them keep developing their skills and expertise. We are committed to recognising and celebrating our people who reinforce a culture of wellbeing, personal growth and development, and to rewarding exceptional contributions to high quality audits. In doing so we are continuing to make audit and assurance an attractive career path and ensuring our people are delivering the high-quality audits that the capital markets and broader society expect.
We are significantly increasing investment in our audit and assurance business and recently announced that we are set to hire more than 6,000 new people over the next five years. These will come from a range of entry-level and experienced backgrounds, and they will all be trained and work in a range of areas critical to audit including climate, data, cyber, emerging technologies and analytics.
We are also absolutely committed to boosting our audit quality and will invest more than £125m in the firm’s audit product and quality improvements, as well as on learning and development for the audit and assurance teams, by 2027.
We were pleased to see that our annual audit quality scores (AQRs) continue to improve, with the FRC recently announcing that 82 per cent of Deloitte’s audits assessed by the regulator required no more than limited improvements, compared to 79 per cent last year. Of the FTSE 350 audits that were reviewed, 91 per cent were assessed as achieving this standard, compared to 73 per cent last year.
However, we are not complacent and will continue to transform our technology, processes, governance and controls. An uncompromising focus on quality is central to the culture of our ring-fenced audit business, and forms the foundation of all our recruitment, learning and development, promotion and reward structures.
Maintaining momentum
Much has been accomplished – by firms, the wider profession, government and regulators – and we are proud of the role we have played. There is still further to go for the proposals for reform to shift into action, but it is encouraging to see that momentum continues.
We are committed to continuing to work with stakeholders across the profession to identify tangible steps that can be taken ahead of regulation and legislation. We must work together to shape the future of audit and corporate governance in order to ensure it better serves business and broader society.
2022 Audit Transparency Report
