As experienced accountants who offer statutory audit services, we keep a close watch on potential developments to auditing that could affect our clients. With the recent change in government, you might be wondering what this means for audit practices in the UK. Here’s what we know so far:

Audit reform is a top priority

The new Labour government has made it clear that audit reform is high on their agenda. Prior to Labour’s election Jonathan Reynolds, the recently appointed Business and Trade Secretary, stated that audit and corporate governance reform would be a priority in their first term. 

Introduction of ARGA

Labour plans to replace the current Financial Reporting Council (FRC) with a new, more powerful regulator called the Audit, Reporting and Governance Authority (ARGA). This new body is expected to have more teeth to enforce regulations.

Legislation is coming

Unlike the previous government, which faced criticism for delays, Labour has pledged to pass the necessary legislation to establish ARGA and grant it statutory powers. 

Under the previous Conservative government the lack of mention of ARGA in the Kings Speech in 2023 was a notable omission. The inclusion of ARGA in the first Kings Speech since the election of the new Labour government indicates that passing the legislation is a top priority. 

Why is this a priority?

These changes come in response to high-profile corporate collapses like Patisserie Valerie and Carillion, where auditors were criticised for not spotting warning signs early enough. The new measures aim to prevent such situations in the future.

What’s the industry response to ARGA?

The response to this introduction has been received positively by accounting industry bodies. 

Gavin Hayes, head of policy and public affairs at Chartered Institute of Internal Auditors (CIIA), expressed his support for the government’s commitment to a draft Audit Reform and Corporate Governance Bill. 

He emphasised that empowering the audit regulator with necessary legal powers is ‘vital to restore trust in the audit and corporate governance system which underpins our economic stability.’

Similarly, Mike Suffield, director of policy and insight at Association of Chartered Certified Accountants (ACCA), stated that audit reform has been ‘severely overdue in the UK.’ He welcomed the inclusion of audit reform in the King’s Speech, calling it ‘a huge step forward.’

Audit Thresholds Could be Changing

While these reforms are significant, it’s important to note that not all companies are required to undergo a statutory audit. The UK government is proposing changes to audit thresholds, which determine which businesses must be audited. 

These changes are expected to take effect for accounting periods beginning on or after 1 October 2024. Under the proposed changes, a company may be exempt from audit if it meets at least two of these new criteria:

  • An annual turnover of no more than £15 million (up from £10.2 million)
  • Assets worth no more than £7.5 million (up from £5.1 million)
  • 50 or fewer employees (unchanged). 

These adjustments aim to reduce regulatory burdens on SMEs while maintaining necessary oversight. If you’re unsure whether you meet the requirement for statutory audit, both under current guidance and with these possible changes, we’ll be happy to help you figure out if you need an audit.

What Does This Mean For You?

If you’re running a business, especially a larger one, you might face more stringent auditing processes in the future. However, this could also mean greater protection and stability in the long run. With an experienced auditing expert to guide you through audit thresholds, you have nothing to fear.

At Williamson & Croft, we’re committed to helping our clients navigate these changes. While the exact timeline for these reforms isn’t set in stone, we’ll be keeping a close eye on developments and will be ready to guide you through any new requirements.

Stay tuned for more updates from Williamson & Croft as we learn more about the new government’s approach to audit reform in the UK.

Curious to know what the new government means for the existing R&D tax credits scheme? Read the latest details.Get in touch with the tax consultants at Williamson & Croft to have a conversation about your auditing needs.