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Audit reform – What does it mean for you?

After years of consultation and consideration, the Government has finally published its recommendations to reform the UK audit system.

The decision to improve audits in the UK came in the wake of the Carillion, BHS and Thomas Cook collapses, which put the actions of the Big Four globally recognised auditors in question.

As part of this new reform, the Government has created a new watchdog, the Audit, Reporting and Governance Authority (ARGA).

This new body will be given powers to investigate and fine directors of large companies if they breach their duties around corporate reporting and audits.

Replacing the role of the Financial Reporting Council, ARGA will now cover unlisted companies with more than 750 employees and a greater than £750 million annual turnover, as well as the audit of many top listed entities.

Alongside the creation of ARGA, the Government also intends to break up the dominance of the Big Four auditors by requiring companies listed on the FTSE 100 and FTSE 250 to assign part of their audits to smaller firms.

As part of the planned reforms, FTSE350 companies will also be required to conduct part of their audit using a ‘challenger firm’. 

In a break from the current rules, large private companies– not just those listed on the stock exchange – will come under the scope of the regulator as well.

The audit reform will also shake up the rules for smaller businesses by simplifying the audit process.

The Government said that the current system forced “too many of Britain’s smallest businesses to spend time and money preparing accounts to a level of detail only needed for larger companies, distracting them from focussing on growth and creating jobs. “

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

“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.”

Want to learn more about how these reforms to audit might affect you? Please contact your Seymour Taylor representative today or email enquiries@stca.co.uk or call 01494 552100.

This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing 14 July 2022.