BEIS has recently published its consultation paper on restoring trust in audit and corporate governance. The paper contains a wide range of proposals which are designed to strengthen the UK’s legal framework for major companies (public interest entities or PIEs) and the way in which they are audited. 

We have now published a summary of the consultation paper and a series of posts on some aspects of the consultation which are likely to be of most interest to corporates. Our summary is available at https://www.burges-salmon.com/news-and-insight/legal-updates/corporate/corporate-governance-and-audit-a-wide-ranging-programme-of-reforms/

Our fifth post looks at the proposal to give the Audit, Reporting and Governance Authority (ARGA) powers to take civil enforcement action against directors of PIEs in relation to breaches of existing directors' duties relating to corporate reporting and audit. 

The key aspects of the new enforcement regime are covered below. It's worth noting that the regime will not replace existing arrangements for taking action against company directors. Responsibility for bringing director disqualification proceedings will also remain with the Insolvency Service. 

1. Are all directors of PIEs subject to the regime? Yes. The proposals assume that all directors of public interest entities will be covered by the new enforcement powers. Previously the suggestion was that the new regime should only apply to four key director roles: CEO, CFO, Chair and the Chair of the Audit Committee. 
2. What directors' duties are covered? The Government expects the new enforcement powers to cover all breaches by directors of the existing statutory duties relating to corporate reporting and company audits. 
3. What specific duties will be within scope? The white paper highlights the following duties: the duty to keep adequate accounting records; the duty to approve accounts only if they give a true and fair view; the duty to approve and sign the annual accounts; the duty to approve the directors’ report; and the duty to provide a statement as to disclosure to auditors and to provide information or explanations at the request of the auditor.
4. Will there be any specific guidance on what's expected? Yes as the white paper acknowledges that some of the duties could be clarified. If the new regime is adopted, ARGA will have the power to impose more detailed requirements as to how certain statutory duties relating to corporate reporting and audit are to be met by directors.
5. What about behavioural standards? The Government is considering whether PIE directors should meet certain behavioural standards (such as honesty and integrity) in the way in which they carry out their duties relating to corporate reporting and audit. 
6. What sanctions will be available to ARGA? Proposed sanctions include reprimands, fines, orders to take action to mitigate the effect of a breach or to make declarations as to non-compliance and in the most serious of cases, a temporary prohibition on acting as a PIE director.

The Government has considered whether these changes will deter candidates from non-financial backgrounds from applying for board positions. In their view the risk is low. This is because under the proposed regime PIE directors will be subject to the same legal duties as they are now, for which they are liable to the more serious penalties of either criminal prosecution or disqualification. 

Time will tell whether this view is correct. However the likely introduction of these enforcement powers is an indication of the very different role envisaged for ARGA in the UK's corporate governance and audit framework.