Reed Smith In-depth

The UK government has published its final proposals for far-reaching reforms to the UK's audit and corporate governance regimes, with significant consequences for the UK's largest companies and their directors and auditors, as well as for audit firms and the audit regulator.

Authors: Delphine Currie James F. Wilkinson Edmund W. A. Tyler

The proposals follow on from the government’s consultation paper published in March 2021, which in turn was the culmination of a series of independent reviews, including the Kingman review into the UK's audit regulator, the Brydon audit regime review and a market study by the Competition and Markets Authority on the audit of FTSE 350 companies. These in part were triggered by a series of high-profile corporate failures, and ongoing concerns about the lack of competition and resilience in the audit market for the UK's largest companies.

Most of the changes are targeted at UK ‘public interest entities’ (PIEs), a category that currently comprises listed companies, banks and insurance companies, but which will be expanded to include large companies and LLPs that have 750 or more employees globally and an annual turnover of £750 million or more (750:750 PIEs) – higher thresholds than those proposed in the consultation paper. In addition, AIM-quoted and AQSE Growth Market-quoted companies will now only become PIEs if they meet these size-based tests.

The government is in the process of preparing a draft bill for those changes requiring legislation, which it will introduce when the parliamentary timetable allows. However, it intends to phase in the changes over a period of several years, with those that do not directly impact businesses (for example, establishing the new regulator) likely to come in earlier than those having a significant effect on wider business.