IT GovernanceRisk Management

How Audit Assurance and Corporate Governance Are Reforming

Business conduct and obligations are coming under increased scrutiny at a time when society is facing unprecedented disruption and upheaval. Reporting and governance mechanisms are critical tenets of public interest and drive trust by identifying well-governed companies. To achieve sustainable performance, corporate governance and controls need to be transparent around the business model and risks. This article at JD Supra by Christopher Colclough, Anna Janik, Brian Moore, Neil Nicholson, and Iain Sutherland speaks about audit assurance and corporate governance.

Audit Assurance Reforms for PIE

A Response Paper published by the government outlines how it intends to handle proposals in its 2021 white paper, “Restoring Trust in Audit and Corporate Governance”. This is built upon three government-commissioned studies.

The UK’s largest public and private enterprises will be the subject of the new audit assurance reforms’ inspection and examination. The reforms address long-term challenges related to statutory audits covering the UK’s biggest listed companies, as well as the perceived failure of the audit product to meet users’ needs. The ARGRA (Audit, Reporting, and Governance Authority) will be established as a new regulator to oversee the implementation of the reforms.

The Criterion for New PIEs

A broader definition of a public interest entity (PIE) will be crucial to many proposals. A PIE is a company that trades transferable securities on a regulated market, a credit institution, or an insurance company. Therefore, they are subject to enhanced audits.

They will add the following large entities to the government’s plan to broaden the definition of a PIE:

  • A private company with 750+ employees or 750+ million pounds revenue (the 750:750 test) (Additionally, if a UK parent company prepares a group’s consolidated accounts and passes the criterion listed above, the group will be classified as a PIE.)
  • Companies that meet the 750:750 test or trade on the alternative investment market
  • LLPs that pass the 750:750 test
  • 750:750-compliant third-sector organizations

However, the 750:750 test will prevent Lloyd’s syndicates and government entities from becoming PIEs.

The authors also speak about the director’s accountability, new corporate reporting, and supervision of corporate reporting. Additionally, the authors discuss audit purpose and scope, audit committee oversight and engagement with shareholders, and competition, choice, and resilience in the audit market.

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