Accountants

Written by Patrick Paper-Barclay

Key developments in 2024 

A key trend for the accounting world in 2024 was the sheer number of corporate insolvencies, and the knock-on effect of this in terms of claims against accountants. The number of corporate insolvencies continued to build upon the record levels already seen in 2023, which saw the highest number of annual corporate insolvencies for 30 years. The Insolvency Service's Annual Report in July 2024, for example, reported almost 11,000 new insolvency cases in the previous 12 months, an increase from just over 9,000 the previous year. 

Where companies are failing, the work of auditors and other accounting professionals inevitably gets drawn into the spotlight. First, an increased workload for, and more pressure on, insolvency practitioners inevitably results in more claims against these professionals.  Secondly, with more insolvencies there is an increased risk of insolvency practitioners investigating the work of other professionals, such as auditors, and pursuing claims against them.  With the surge in insolvencies, it was no surprise that the previous government issued a consultation on the future regulation of the insolvency industry. However, it is unclear whether Labour will take these reforms forward as part of their plans. 

For ICAEW members, professional indemnity insurance changes came into effect from 1 September 2024.  Whilst the final changes were somewhat scaled back from the ICAEW's initial proposals, significant changes included an increase in the minimum limit of indemnity for most firms from £1.5m to £2m, and amending the maximum permitted excess to the higher of £3,000 or 3% of the firm's fee income.

What to look out for in 2025 

Audit reform could represent a big development in 2025 for the accountancy field. This has been on the agenda for years, against the backdrop of multiple high-profile corporate failures over the last 10 years resulting in a conclusion that audit regulation was not fit for purpose, and a political imperative for reform.  The previous government's plans, which have been in place since 2022, centred around the transition of the existing audit regulator, the Financial Reporting Council, into a new body, the Audit, Reporting and Governance Authority (ARGA). Following repeated slips in the timetable, however, the draft bill failed to make the King's Speech in 2023. 

With the election of the new Labour government, the future progress of the reforms was uncertain. However, audit reform was the second item mentioned in this year's King's speech, and the documentation published alongside this confirmed that the government would be taking audit reform forward, and that its plans would specifically include the creation of ARGA.  It remains to be seen precisely when and in what form this transition will happen, but we are anticipating further details in the very near future.

We will need to wait to see what Labour's precise plans are for ARGA's powers and resources. However, on the basis of the previous government's plans, we are anticipating increased investigation and enforcement powers, more resources, and increases in remit and scope, for example power to take action against non-accountant company directors.  The reforms are therefore anticipated to raise standards and introduce new risks for accountants and others.  It is also anticipated that increasing competition in the audit market will fall within ARGA's remit and objectives, including encouraging challenger firms to take over a greater proportion of audits of the largest and most significant companies (known as Public Interest Entities), an area currently dominated by the 'big 4'.  This will bring further risks, as firms step up to deal with larger audits.  Such risks were emphasised in the ICAEW's 2024 Annual Review, which noted that over 20% of audits reviewed were not satisfactory, in part caused by the shift of complex audits to smaller firms, due to market conditions and cost pressures. It will be interesting to see whether the implementation of ARGA will result in a similar dynamic.

Explore Annual Insurance Review 2025