Letter: UK undermines its investment case by diluting audit reform

It is disappointing and disheartening to read the FT article “Audit regulation shake-up to be diluted” (Report, May 31), related to the UK government’s response to published audit reform.

While there are many provisions to comment on, the greatest disappointment is the failure of the UK to establish management certifications and audits of internal controls over financial reporting (ICFR).

At the CFA Institute, a global association of investment professionals, we devoted considerable time over the last several years responding to the various UK government consultations on audit reform.

In 2019 CFAI issued a separate letter to the Department for Business, Energy and Industrial Strategy urging the UK government to implement those measures as we have seen them work in the US under the 2002 Sarbanes-Oxley Act (known as Sarbox). These views were reiterated in 2021.

The behavioural changes brought about by the implementation of management certifications and audits of ICFR are clearly evident in the US. We do not see the UK government’s response as “proportionate” or “ensuring that the UK capital markets remain competitive” as some suggest. Quite the opposite.

Investors must, and will simply increase the equity risk premium for investing in the UK relative to, for example, the US where such measures exist. As the largest global organisation of professional investors — with our largest member society residing in the UK — we find the UK has missed its objective of restoring trust as well as the opportunity to enhance investor protection.

Sandra J Peters
Senior Head, Financial Reporting and Audit Policy Advocacy, CFA Institute Member, UK FRC Stakeholders Insight Group; Member, US SEC Investor Advisory Committee, New York, NY, US