The audit reform in the United Kingdom: Challenges and the future

Abstract

Subject. Intended to counter fraud and unreasonably high bonuses for top executives, the U.K. corporate governance and audit reform implies some changes so as to improve the financial transparency of companies, primarily, large and public interest entities. The reform is called to maintain the lucrativeness and competitiveness of the U.K. financial markets, creating a sustainable and manageable environment, which major long-term investors seek. Objectives. I review and summarize proposals set out in the reform as best-in-class practices, which may work in auditing and assurance in Russia and underlie respective changes. The reform may contribute to the auditing profession, help avoid accounting scandals and corporate failure. Methods. Studying the audit reform, I applied methods of analysis, generalization, and analogy. Results. Having analyzed the reform plan, I found valuable ideas concerning directors’ responsibilities, corporate reporting and auditing. The reform suggests that the Audit, Reporting and Governance Authority should be established. The definition of public interest entities became broader. Audit boards are now to meet additional requirements. The audit market will be overhauled by segregating auditing and consultancy units of the Big Four companies and introducing statutory audit, which should be jointly performed by major and smaller entities, and tightening audit transparency rules. Hence, top executives will be more responsible and liable for financial reporting and increased transparency of internal control and trade account settlement principles. Such proposals should be adapted to the audit regulation practice in Russia and be applied with reference to the recent legislative novels. Conclusions. The quality of audit is critical for the economy and the public, since it ensures the national credibility as a capital market. Any sustainable economy needs a comprehensive approach, which combines the audit reform and corporate governance and accounting standards reform.