Audit reform rarely makes headlines, but the implications are real and far-reaching for many UK business owners. When companies face collapses like Carillion or BHS, it’s not just a boardroom issue – it affects employees, suppliers, pensioners, and shareholders.

That’s why, in recent years, there’s been growing pressure on the UK government to tighten audit regulations and prevent future corporate failures. But now, there are signs that those ambitions may be quietly retreating.

For private companies, this potential backtrack raises important questions:-

• What audit standards will apply? 
• Who will be caught in the net of reform? 
• How should businesses respond? 

Understanding where things stand and how they may shift can help companies stay ahead of compliance, reputation, and risk.

What prompted the audit reform proposals?

In response to a string of corporate collapses and damning reviews of the UK’s audit regime, the government proposed sweeping reforms. At the heart of these was a plan to expand the definition of a “public interest entity” (PIE).

Under existing rules, PIEs are mainly publicly listed companies, insurers, and banks, firms whose failure could undermine trust in the financial system. The reforms proposed to broaden this definition to include large private businesses with over 750 employees and over £750 million in turnover. If the proposals went ahead, approximately 600 private companies would have been caught in this net.

This change would have imposed tighter audit standards, greater accountability, and potentially higher costs. Auditors would be required to report more extensively, companies would face stricter internal controls, and boards would be held more directly accountable for financial failings.

Governance campaigners and audit reform advocates welcomed these proposals as a long-overdue fix to the “light-touch” culture that had allowed serious failings to go unchecked.

A shift in tone from the government?

However, recent reporting from the Financial Times and other sources suggests the government may be rethinking its approach. Ministers, including Jonathan Reynolds and Justin Madders, have reportedly been engaging in behind-the-scenes conversations with audit firms and corporate leaders. The topic? Possibly softening the incoming rules.

The concerns are predictable and, in many ways, understandable. Business leaders argue that additional audit requirements could stifle growth, discourage investment, and impose disproportionate costs on privately held companies not seeking public capital. With the government under pressure to promote economic growth and make the UK more attractive post-Brexit, some now fear that audit reform is being quietly sidelined.

The language surrounding the reforms has clearly shifted. Where there was once a firm commitment to full implementation, recent government messaging has focused on “reducing costs on business” and “cutting red tape.” 

It seems that ministers are now considering how to “right-size” the reforms and tailor regulation to support growth, signalling a move toward compromise.

Why does audit reform matter for private companies?

For many large private businesses, this change will come as a relief – at least in the short term. Preparing for PIE status meant reviewing audit committee structures, assessing compliance systems, and considering the costs of additional reporting layers. Avoiding these obligations may seem like a win for efficiency and cost control.

But there’s another side to the story. Tighter audit rules can enhance credibility and transparency, especially for firms looking to attract investment, secure lending, or prepare for an eventual listing. Reforms also act as a guardrail against internal risks – from misreporting to fraud – helping firms maintain operational integrity.

Additionally, there’s a reputational risk to consider. If audit failures continue to hit the headlines, public scrutiny may grow, and stakeholders could begin to apply their own pressure. 

For companies operating in sectors like construction, logistics, food production, and private healthcare – where supply chains and public services intertwine – perceptions matter.

Practical example: What this looks like in the real world

Consider a privately-owned logistics company with 1,200 employees and £800 million in turnover. Under the proposed PIE criteria, it would have to establish a fully independent audit committee, submit to more intensive audit inspections, and potentially rotate auditors more frequently. It might also need to provide enhanced reporting on internal controls and risk management.

These changes require time, expertise, and money. Still, they also provide assurance to lenders, insurers, suppliers, and employees, especially if the business is exposed to long-term contracts or supply chain obligations.

Now, if that same company is no longer in scope, it might choose to scale back some of its preparations. But doing so could mean missing out on the strategic advantages of robust governance: risk resilience, investor confidence, and readiness for future changes.

What’s the likely outcome?

The government hasn’t officially cancelled its audit reform plans, but there’s no clear timetable either. Several elements have already been delayed, including the launch of the new audit regulator, the Audit, Reporting and Governance Authority (ARGA), which was supposed to replace the much-criticised Financial Reporting Council (FRC).

In practice, we will likely see a watered-down version of the original reforms. The thresholds for defining PIEs may be increased, meaning fewer private companies will be included and reporting obligations may be scaled back or phased in gradually.

For companies near the threshold, this creates uncertainty and, with it, risk. Should they continue preparing for PIE status? Will rules change again under a future government? Or is it safe to park reform plans altogether?

Uncertainty creates risk but also opportunity. Companies that move early can position themselves ahead of peers and demonstrate proactive governance to their stakeholders.

How professional audit advice can help

Understanding whether your business is in scope for future audit reforms – and what actions are worthwhile even if you’re not – requires careful consideration.

An experienced accountant or auditor can help in the following ways:-

• Assessing risk exposure: Identifying whether your business structure, size, or financing plans may trigger future PIE status.
• Evaluating internal controls: Even if not required, strengthening internal audit functions and controls can reduce operational risk.
• Reviewing reporting procedures: Ensuring that your financial statements meet best-practice standards, which may improve investor and stakeholder confidence.
• Planning for growth: If your company is scaling rapidly, now is the time to lay the groundwork for future compliance.
• Mitigating reputational risk: Transparent reporting and strong governance build trust, not just with regulators but also with employees, suppliers, and customers.

The right financial advice turns compliance into a strategic asset, and with regulations still in flux, this support is more valuable than ever.

Audit Reform – Final Thoughts: Stay ready, stay resilient

While the government may be reconsidering the scope and timing of stricter audit regulations, this isn’t a signal to disengage. The trajectory of reform is still moving toward stronger governance, even if the timeline is uncertain.

Private companies that ignore this direction entirely may find themselves playing catch-up further down the line. However, those who prepare, even modestly, will have a competitive advantage. They will be ready for future regulation, resilient to reputational risk, and attractive to external stakeholders.

At Wilkins Southworth, we help businesses of all sizes navigate changing regulatory landscapes. If you are concerned about future audit obligations or want to explore ways to strengthen governance and compliance, our team is ready to help.
Contact us today to arrange a consultation.