Introduction of the UK's New Audit Body and the Expansion of PIEs
Amid the above integrity challenges, the UK government plans to replace the FRC from 2025 with the Audit, Reporting and Governance Authority (ARGA), a new body with more comprehensive powers to address audit oversight and improve transparency. ARGA will enforce stricter requirements, focusing on enhancing corporate governance and enforcing accountability for firms handling public interest entities (PIEs).
Such changes are critical for CFOs and finance leaders to consider as part of their audit readiness strategy, particularly for firms on the threshold of becoming PIEs. If you are caught up in the current transition you will need to proactively align processes, controls and governance frameworks with the evolving requirements, in order to enhance your compliance and governance frameworks to withstand rigorous audit scrutiny.
Public Interest Entities (PIEs)
Under the upcoming 2025 framework, PIEs will not only include publicly listed companies but will also likely extend to large private companies meeting specific criteria, such as revenue thresholds or substantial employee numbers. Expanding the scope of PIEs is expected to bring more organizations under ARGA’s remit, ensuring tighter controls over the audit process, especially for companies with significant public impact. This shift could affect audit firm practices, increase operational transparency, and raise the expectations placed on auditors.
Recent Historical Trends & Costs
Over the past five years, UK audit fees have significantly increased, with rates rising by around 75% for London-listed firms. This trend is largely driven by stricter regulatory demands from the Financial Reporting Council (FRC), which has imposed higher audit standards and intensified enforcement following several corporate scandals. Increased audit complexity, especially for smaller or mid-sized companies, and a tight audit talent market have further inflated costs as firms strive to maintain quality and retain skilled professionals.
Average audit fees for FTSE-listed firms, for example, jumped from £733,000 in 2018 to £1.28 million by 2023. For companies listed on the AIM market, fees rose from £130,000 to £228,300, reflecting the higher perceived risk and compliance requirements for these firms.
The market has also experienced consistent growth in audit fees, driven by heightened compliance expectations, increased regulatory scrutiny, and the added complexity of larger firms. Our analysis of trends over the last five years shows:
- FTSE-Listed Firms: Average audit fees for FTSE 100 companies rose due to enhanced regulatory requirements, a higher demand for transparency, and the growing complexity of global operations.
- AIM-Listed and Large Private Firms: While audit fees have also increased in these segments, AIM firms and large private companies have faced lower fee growth than their FTSE counterparts, reflecting their relatively simpler structures.
- Voluntary Audits: Many SMEs and firms below the audit threshold have chosen voluntary audits to boost credibility, especially in sectors like fintech and renewables. However, the pricing trend here has remained comparatively stable, as these audits are often less complex.
Expected Developments in the Next few Years
Looking ahead, the UK audit landscape will likely be shaped by four major trends:
- Regulatory Influence of ARGA: The transition from FRC to ARGA will intensify regulatory oversight, leading to higher compliance costs and potentially increased fees for companies under PIE designation.
- AI and Digital Transformation: Automation and AI will redefine audit processes, improving data analysis, fraud detection, and efficiency. The impact will streamline audits for firms with significant data handling, cutting down manual errors and time.
- Market Consolidation and New Entrants: ARGA's potential push for joint audits may allow smaller firms to enter the market, which could increase competition and eventually stabilize or reduce audit fees.
- Focus on ESG Compliance: Growing environmental, social, and governance (ESG) standards will play a pivotal role in shaping audit practices, especially for PIEs, who will be required to disclose ESG metrics and undergo ESG-focused audits.
As we look ahead, we acknowledge that the UK audit landscape is currently undergoing transformative change to address audit integrity and improve public trust in financial reporting. As the ARGA comes into force, companies will have to navigate increased regulatory demands, especially those classified as PIEs. Amid evolving regulatory frameworks, technological advancements—particularly in AI—will also redefine audit practices, driving efficiency and enhancing fraud detection.
We have continuously emphasized on the importance for finance teams and audit firms to adapt to these trends, ensuring alignment with new standards to foster sustainable growth and robust financial governance. This outlook not only helps businesses anticipate regulatory shifts but also provides a clear direction for auditors to harness digital tools, streamline compliance, and enhance transparency in financial reporting.
How can we Help?
We recognize that effective audit readiness is critical to financial integrity and regulatory compliance. Our Audit Readiness Services provide comprehensive support to ensure your business is well-prepared for your upcoming audit process. We assist clients across key areas, including:
- Financial Data Preparation: Ensuring accurate and organized financial data to reduce audit disruptions.
- Internal Controls Assessment: Strengthening internal controls to meet compliance standards and prevent future discrepancies.
- Compliance with Accounting Standards: Guiding your team through complex updates in IFRS, FRS, or other applicable standards.
- Pre-Audit Reviews and Testing: Conducting preliminary reviews to identify potential issues early, minimizing last-minute challenges.
Our experienced Audit Readiness team led by Daniel Jackson offers insights into best practices for audit processes and collaborates closely to streamline your path to audit success. Contact us for an initial assessment or visit our website for more details.
To learn more, you can contact Daniel, our UK Audit lead, by emailing djackson@thecfohq.com Tel +44 800 654 6550 |
