The U.K. is considering making corporate directors responsible for the accuracy of their companies’ financial statements, with an official proposal to that effect possible as soon as this coming week, the Financial Times (FT) reported.
The British government is considering putting the new responsibility, which could take the form of exposure to fines or bans on certain business activities, on directors as part of its response to accounting scandals in the U.K. and Europe. FT cited as examples accounting troubles revealed at companies Carillion and Patisserie Valerie.
FT reported that Kwasi Kwarteng, the U.K.’s business secretary, will publish the proposals in an upcoming white paper. Kwarteng’s proposals will run to more than 200 pages and in some ways mirror U.S. regulations that were issued after the Enron accounting scandal through what are widely known as the Sarbanes-Oxley rules.
The rules also would give regulators new power and add to the responsibilities of the audit committees of the country’s largest companies, FT reported.
A negative effect of new regulations could be the costs for companies as they attempt to emerge from pandemic restrictions, FT reported, quoting an unidentified head of audit in the U.K. as saying: “These are big costs for British businesses. The government needs to make sure that there are not so many constraints that it will be too expensive to do business here.”
FT cited unidentified sources who said the new proposal is unlikely to include a recommendation, endorsed in some quarters, that the largest companies be required to employ two auditing firms simultaneously.
“Strengthening our corporate governance and audit regime will help to ensure that the U.K. remains a world leader in corporate transparency and advance its status as a place of the highest standards in audit,” a government spokesman said, per FT.
In July, the U.K.’s Financial Reporting Council announced a major regulation to take effect in 2024. The Big Four accounting firms — Deloitte, EY, KPMG and PwC — will have to separate their auditing and consulting in separate business units. But they’ll be allowed to exist within the same parent companies.