A senior academic has called on the government to push ahead with audit reform, despite signals that the measures might be ditched as part of Treasury efforts to pursue growth.

Adam Leaver, of the accounting research unit at the University of Sheffield, writes that failure to address audit reforms could cost taxpayers when the government has to clean up after an accounting scandal. He also accuses Big Four audit firms of “failing” to deliver “economic and business stability”.

Writing in the Financial Times, Leaver says: “In reality, when large firms like Carillion, Thomas Cook and BHS go bust due to poor auditing, it’s the British public that pays the price—through expensive government bailouts, job losses and costly disruption that affects consumers and taxpayers.”

Leaver also issues a warning. His says his own research shows that, of the biggest 250 firms that collapsed between 2010 and 2022, auditors failed to “raise the alarm” in 75% of cases.

“Financial transparency and accountability are crucial for wider economic and business stability.

“But the Big Four audit firms are failing to deliver this,” Leaver writes.

Outstanding bill

The government included a new audit reform bill in last year’s King’s Speech, the document that sets out the government’s legislative programme.

However, since then, there have been few public statements on progress and in January there were stories in the press that ministers had met with the audit sector to discuss “watering down” any potential reforms.

This prompted some accounting figures to speak out. Bruce Cartwright, chief executive of ICAS, Scotland’s accountancy institute, told the Daily Business: “The arguments for this reform have already been made and won.”

Just after Christmas, the Institute of Directors (IoD) revealed it thought government might seek new proposals for audit reform.

In a policy document for 2025, the IoD said: “Although the government has affirmed its commitment to a draft bill on corporate governance and audit reform, there remains uncertainty about the specific measures to be adopted and whether it will be a legislative priority.”

At stake is a host of reforms, developed in a number of consultations following the collapse of Carillion in 2018.

Ergo ARGA

Chief among the reforms is the creation of a new regulator with bolstered powers, ARGA (the Accounting, Reporting and Governance Authority), to replace the current watchdog, the Financial Reporting Council (FRC).

Among the powers proposed for ARGA were the ability to impose sanctions on directors who failed in their reporting and audit duties.

The FRC has also finalised a new set of minimum standards for audit committees that are ready to go.

Another key question reforms would need to answer is whether to shift to “managed shared audit”—a process in which a big audit firm partners with a smaller firm to complete an audit commission.

Though the previous Conservative government had accepted this in principle, there was little detail in government documents to suggest how this might work in practice.

The only significant public statements on audit reform made by the government were in October, during a debate in the House of Lords, when Lord Leong said a new bill would give ARGA new powers “to investigate and sanction company directors for serious fair in meeting their existing duties and responsibilities relating to accounts, corporate reporting and audit”.

He added: “There are complex choices involved and we expect extensive engagement on these issues.” A sign that background discussion was either under way or imminent.