The BVCA’s response to BEIS’ consultation, titled Restoring trust in audit and corporate governance

The BVCA recently submitted a response to BEIS’ consultation on audit and corporate governance. Our Deputy Director General and Director of Policy, Gurpreet Manku, explains more.

What is the consultation about?

BEIS recently consulted on its proposed reforms to audit, corporate reporting and corporate governance for UK companies considered to be in the public interest.

When the proposed reforms were published in March, their purpose was twofold; to ensure continued investment into the UK, based on the strength and reliability of the information published by public interest entities (PIEs), and to safeguard the markets, investors, creditors, suppliers and – importantly the many employees of these companies from sudden or unforeseen collapse. As BEIS’ executive summary states succinctly, ‘corporate failure can happen but it should rarely be a surprise’. The collapse of Carillion is often cited as an example in government proposals to restore trust in audit and corporate governance.

The Government is planning to implement most of the recommendations of the reviews it commissioned into the audit profession, the role of the regulator, corporate reporting and audits, including expanding the definition of a PIE to cover large private companies as well as listed businesses. The reforms include new powers to hold directors of large companies to account and establish a new audit regulator that has much stronger powers to enforce standards.

Given the BVCA’s membership supports the large companies caught by these reforms, our policy team responded to the proposals. It’s paramount that the private equity and venture capital industry is well-represented throughout BEIS’ process given the impact these changes will have .

What did our submission say?

The BVCA has a long track record of support for, and involvement in, government initiatives on this topic and the industry’s long-term commitment to robust corporate governance structures and transparency of reporting is already clear.

One does not need to look further than both the Wates Corporate Governance Principles for Large Private Companies and Walker Guidelines on transparency to see that large UK private equity-backed companies are already providing significant levels of disclosure. In the case of the Walker Guidelines, this is an industry initiative where the private equity industry has been providing additional disclosures voluntarily for over a decade.

Given this backdrop, we (alongside many other stakeholders and business groups) have highlighted that adding further layers of reporting and legal obligations, and the associated costs, runs the risk of reducing the UK’s competitiveness as a destination for investment, particularly at a time when business is focussed on recovering from the pandemic and adjusting to Brexit.

We have responded to a number of proposals covering:

• the proposed expansion of the PIE definition and the need for consistency in different thresholds for narrative reporting;
• the need for calibrated requirements for private companies (rather than using the same ones as listed companies), for example following the Wates Principles for the annual internal controls effectiveness review;
• the phasing-in approach and longer timeframes and exemptions for private companies (note PIEs are already subject to additional narrative reporting and audit requirements in the UK);
• the need for more clarity on the proposed enforcement regime for directors as they are already subject to wide-ranging duties under statute and common law and uncertainty could deter non-executive directors from taking on roles;
• the need for further guidance on the Resilience Statement (combining the going concern and viability statements) and the audit and assurance policy; and
• the provision of non-audit services and the need to factor in our previous work with the FRC on this matter to ensures transactions run smoothly.

Of course, this provides just a brief snapshot of our submission which can be read, in full, here.

What happens next?

The BVCA is engaging with representatives from both BEIS and the FRC and we’ll continue the PE/VC related dialogue over the coming months.