UK audit regime overhauled to help restore trust in big business

The UK government has announced reforms designed to restore confidence in audit and corporate reporting.

The revamp follows accounting scandals linked to the collapse of several major firms including Carillion, BHS and Thomas Cook.

Amongst the new measures are the creation of a new regulator, greater accountability for big business and new rules to tackle the dominance of the main audit firms.

The Financial Reporting Council (FRC) will be replaced by a new, stronger regulator, the Audit, Reporting and Governance Authority (ARGA), with tougher enforcement powers and funded by a levy on industry.

For the first time, the largest private companies — not just those listed on the stock exchange — will come under the scope of the regulator.

ARGA will also have new powers to investigate and fine directors of large companies if they breach their legal duties around corporate reporting and audit.

To break up the dominance of the ‘Big Four’ audit firms, companies listed on the FTSE 100 and FTSE 250 will be required to conduct at least part of their audit with a smaller auditor.

“Collapses like Carillion have made it clear that audit needs to improve, and these reforms will ensure the UK sets a global standard,” said Minister for Corporate Responsibility Lord Callanan.

“By restoring confidence in audit and corporate reporting we will strengthen the foundations of UK plc, so it can drive growth and job creation across the country.”

The government also announced that it will review wider reporting burdens on large and small businesses. For example, the existing rules for small firms may be relaxed as the government said they could be “forcing too many of Britain’s smallest businesses to spend time and money preparing accounts to a level of detail only needed for larger companies”.