In the UK, The Draft Audit Reform and Corporate Governance Bill was the first piece of legislation referenced in the King's Speech in July. This would have come as a great relief to those who have been frustrated by the delay in implementing the Audit, Reporting and Governance Authority (Arga) – plans for which were announced in March 2019 – which will replace the Financial Reporting Council, with expanded powers to investigate and sanction directors.
Under the current regime, directors of a company making incorrect financial statements can only be held accountable by the regulator if they belong to an accountancy body.
The argument for increasing personal liability is that it acts as a deterrent to financial officers deliberately obfuscating or withholding information. But Naresh Aggarwal, associate director for the policy and technical team at the Association of Corporate Treasurers, is not convinced that it will deter those who don’t believe they are doing anything particularly wrong.
“In some cases, they will mislead over the treatment of a loan, for example by describing it as a prepayment, in the hope that it was just a bad year and that business will pick up,” he says.
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