A leading MP has said the government’s U-turn on an eight-year drive for audit reform legislation will increase the risk of UK corporate accounting no longer being viewed as a “gold standard”.

Liam Byrne, chair of the House of Commons business select committee, made the comments to The Times.

“Branding audit reform ‘less pressing’ does not make risk, bad behaviour by corporate rogues vanish like mist. It simply means we’ve less chance of spotting it and stopping it.

“Trade is built on trust, so banning audit reforms now risks Britain becoming known as a country where business accounts are no longer the gold standard they once were.”

It emerged this week that the government has ended efforts to bring in regulation that would have created a new audit regulator with additional powers over auditors and company directors.

In a letter to Byrne, the business minister Blair McDougall said the government’s “priority is to promote economic growth and reduce administrative burdens”.

McDougall argued that since the collapse of Carillion in 2018—the trigger for reform—the quality of audit regulation and audit has improved and Parliamentary time is limited.

He said government would concentrate on “simplification and modernisation of corporate reporting”.

There was widespread disappointment in the financial sector at the news of audit reform being cast aside.

Another scandal on the horizon?

It was only last week that the head of the Financial Reporting Council, Richard Moriarty, warned that government should push ahead with reform before another scandal emerged.

Speaking to the podcast, Following the Rules, Moriarty said: “I will keep on making the case for audit reform. It is always so much better to do such reform during what I call ‘peacetime’, and not on the back of potentially a failure or a scandal, where political response says something must be done.”

Proposals for reform came about in the immediate wake of the Carillion collapse from the Kingman, Brydon and Competition and Markets Authority reviews. These looked at audit regulation, the market and audit content.

Reform was promised in the most recent King’s Speech—the UK’s government’s legislative programme. However, there were already signs that government was less than enthusiastic. Chancellor Rachel Reeves entered office and immediately gave a speech declaring regulation a “boot on the neck of business.”

The government will push ahead with a project modernising corporate reporting which, it estimates, will ease the reporting burden on thousands of companies. McDougall said in a statement that more than 440,000 would no longer need to produce a director’s report in their annual accounting.

A broad consultation document for the project is expected some time this year.

Elsewhere, the government has also said it will place the Financial Reporting Council on a statutory basis. This will set its responsibilities and, potentially, powers, into legislation. Whether this will include anything new remains to be seen.

The big changes to audit and auditor regulation are over. But Byrne’s words may be prophetic. The wisdom of this week’s decision may survive only as long as until the next accounting scandal.