Long-awaited audit reform bill scrapped by UK ministers

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The UK government has scrapped a bill promising to reform the audit market, ending an effort that has stretched back eight years to the collapse of outsourcing group Carillion and other high-profile corporate failures.

The Department for Business and Trade said on Tuesday it had decided “not to proceed with the Audit Reform Bill following improvements in recent years, and to prevent significant new costs for large businesses” in the latest U-turn by ministers.

The DBT added it was instead “pressing ahead with modernising corporate reporting to reduce unnecessary burdens”.

One official said ministers believed audit quality had improved sufficiently since Carillion’s failure in 2018, arguing the bill was “not the best use of our legislative time” and did not align with the government’s broader push to cut regulatory red tape.

First promised in 2018 after the collapses of retailer BHS and Carillion, which left thousands unemployed and suppliers in financial ruin, the legislation was repeatedly delayed and diluted across successive parliaments.

Three of its central proposals — mandating stricter oversight of audits at large private companies, measures to force the Big Four accounting firms to share audits with smaller firms and stronger accountability for company directors — were watered down or shelved amid sustained lobbying.

Despite multiple independent reviews, a government white paper and extensive public consultation, no legislation was brought forward in the eight years since Carillion’s collapse.

In that period, further corporate failures linked to weaknesses in audit and governance have included Patisserie Valerie, Thomas Cook and Wilko, while concerns about audit quality have persisted amid record-high fines from the regulator.

The decision comes despite reassurances given to the sector as recently as September, when the DBT told the Business and Trade Committee it would open a fresh consultation on the bill’s main proposals.

More than 60 MPs and peers later wrote to Sir Keir Starmer in the days following that pronouncement, urging him to end what they described as prolonged prevarication over audit reform, while Richard Moriarty, the chief executive of the Financial Reporting Council (FRC), renewed calls for legislation as recently as last week.

Labour had pledged to enact the legislation if it won the 2024 general election and promised a draft bill in its first King’s Speech.

The bill would have reclassified the largest private companies as “public interest entities”, subjecting them to tougher audit scrutiny, and sought to increase competition by requiring joint audits involving smaller firms. A separate proposal to hold non-accountant directors responsible for reporting failures prompted a wave of lobbying and negotiations.

A string of high-profile problems at major listed companies continues to spark regulatory investigations, including alleged breaches of independence rules and accounting standards during EY’s audits of Shell and the Post Office respectively, while the watchdog weighs whether to probe PwC for its audit of WHSmith.

The UK’s top accounting firms are also pushing the regulator to water down its practice of routinely “naming and shaming” companies under investigation, after the FRC set out plans to ease investigations of auditors sparked by sustained complaints from firms about disproportionate and lengthy probes.

Anne Kiem, chief executive of the Chartered Institute of Internal Auditors, called the government’s decision “deeply disappointing”.

“We urge the government to deliver good on its promise of putting the Financial Reporting Council on a legal footing with the powers to do its job effectively and to make this a priority,” she added.

The DBT still intends to give the regulator the stronger legal powers it has been promised, a person close to the regulator said.

Alan Vallance, chief executive of the Institute of Chartered Accountants in England and Wales, said: “We cannot hide our disappointment that eight years since the collapse of Carillion and after many false dawns, the government has decided to scrap the audit and corporate governance bill.

“The government had itself recognised that an audit reform bill would increase global investor confidence in UK companies and boost the prospects of growth.”

Moriarty said: “We recognise the government is balancing many competing priorities, which means the full package of reforms is not being taken forward — but the FRC has not been standing still and we will continue our work supporting confidence and growth in the UK economy.”