The government is launching a consultation on audit and corporate governance reforms, following the growing number of large-scale company failures in recent years.
The reforms are intended to safeguard British jobs, avoid company failures, and rebuild “people’s confidence in business”.
While the government claimed that the UK is a leading destination for foreign investment, it conceded that investor and public confidence has been undermined by the severe job losses and taxpayer consequences seen in cases such as Carillion, Thomas Cook, and BHS.
Therefore, it sees “robust and rigorous scrutiny” of large firms as crucial moving forwards, as well as the introduction of a new audit profession overseen by a new regulator to break up the dominance of the Big Four.
Kwasi Kwardteng, business secretary, said that it is clear the UK’s audit regime “needs to be modernised with a package of sensible, proportionate reforms”.
He added: “By restoring trust in our corporate governance regime and encouraging greater transparency, we will provide investors with clarity and certainty, cement the UK’s position as the best place in the world to do business, and protect jobs across the country.”
Split into three sections, the reforms will focus on improving the audit market, reinforcing investor and public confidence, and increasing director accountability.
Addressing the first point, companies will be required to use small “challenger” firms to conduct a large portion of their annual audit to increase competition.
The Big Four will also face a cap on market share, and a new regulator, the Audit, Reporting and Governance Authority (ARGA) will be established.
To regain confidence in business, new reporting obligations will be introduced, audits will be able to extend beyond financial results, and ARGA will be backed by new legislation.
Finally, directors of large businesses could be held accountable for serious failings, with a focus on increased transparency also targeted.
Lord Callanan, minister for corporate responsibility, said: “Audit failure isn’t an abstract problem, it has real life consequences.
“Auditors and rogue directors who have been asleep at the wheel must be held accountable. So, as part of our plans, we will look to ensure the new regulator is fully equipped to take action where serious lapses have occurred.”