UK accounting firms have warned that government proposals to exempt some medium-sized companies from statutory audits could put up to £1.2 billion in annual audit fees at risk, potentially dealing a significant blow to smaller and mid-tier practices.
According to a Financial Times report, industry executives fear that the changes could force firms to reduce their audit operations, cut graduate recruitment and shed partners.
The proposals form part of the government’s Modernising Corporate Reporting consultation, launched on 7 September to reduce reporting costs and regulatory burdens on businesses.
Under the plans, some medium-sized companies could become eligible for audit exemptions currently available to smaller businesses.
Medium-sized companies generally fall within a category requiring them to meet at least two of three criteria: turnover not exceeding £54 million, balance sheet assets not exceeding £27 million and no more than 250 employees.
Mid-Tier Firms Face Greatest Exposure
The £1.2 billion estimate is based on approximately 40,000 medium-sized companies and an average audit fee of £30,900, according to Financial Reporting Council data cited by the Financial Times.
However, the figure represents a potential market exposure rather than a forecast of actual lost revenue. Some companies already benefit from exemptions, while others would continue commissioning audits voluntarily or to satisfy lenders and investors.
The government disputes the £1.2 billion estimate and has not yet published an impact assessment for the proposal.
Smaller accounting firms could be disproportionately affected. Firms outside the six largest accounting groups carried out 87% of small and medium-sized company audits in 2024.
The concern extends beyond immediate fee losses. Reduced audit portfolios could limit opportunities to train auditors and build the experience needed to compete for larger corporate engagements.
That would complicate efforts to strengthen competition with the Big Four. As Big4News’ recent FTSE 250 analysis demonstrated, challenger firms have increased their presence among listed companies, but much of that progress remains concentrated in investment companies rather than larger operating businesses.
The government argues that reducing unnecessary reporting obligations would lower costs for businesses.
The proposals remain under consultation, with responses due by 30 November 2026. No decision has yet been made on extending the exemptions.
Want to stay up to date on all things Big Four around the world?
Check out the News section and subscribe to Big4News for weekly deep dives and briefings.
About the author: Claudine Cassar is the founder and editor of Big4News, covering audit, consulting, regulation and governance across Deloitte, PwC, EY and KPMG.