The UK has unveiled its long-awaited audit regime overhaul, with the government announcing a new regulator to ensure oversight of the largest private companies.
The Financial Reporting Council will be replaced by the new Audit, Reporting and Governance Authority (ARGA), funded by a new levy on industry, which will have oversight of unlisted companies with at least 750 employees and more than £750m annual turnover.
It was reported by Sky News last week that these thresholds were watered down by the government, leading to hundreds of firms remaining unregulated, after initial plans to classify all companies with 500 employees and turnover of more than £500m as Public Interest Entities (PIE).
The proposed reforms, spearheaded by business secretary Kwasi Kwarteng, will also see directors at PIE companies liable to face fines or lose their bonuses if they are found to have lied about their firm’s finances.
Dr Roger Barker, director of policy and governance at the Institute of Directors, said: “It is understandable that the government is limiting its expansion of Public Interest Entity to a smaller group of large private entities than first envisaged, given the need to minimise additional regulatory burdens on business in a challenging economic environment.”
The new regime comes on the back of accounting scandals at failed companies Carillion and BHS, and aims to ensure greater accountability for big business while also challenging the dominant status of the Big Four accounting firms.
The Department for Business, Energy and Industrial Strategy (BEIS) said “FTSE350 companies will be required to conduct part of their audit with a challenger firm” in a bid to “curtail the unhealthy dominance of the Big Four audit firms”.
The Federation of Small Businesses (FSB) said it was “good to see BEIS grasping the nettle on audit reform”.
“Improving transparency at big corporates whilst easing unnecessary reporting burdens for small businesses is the right direction of travel,” FSB national chair Martin McTague said.