The code applies to the Big Four and to other firms auditing FTSE 350 companies. Going forward it will also apply to firms that audit significant numbers of other types of public interest entities.

With the operational separation of audit practices at the largest audit firms, audit firm governance is at a turning point. Today’s proposals will embed a continued focus on the public interest and audit quality across the UK’s largest audit firms.

While the Big Four firms have responded positively to operational separation, monitoring work by the FRC has found there is scope to further strengthen oversight and governance.

The proposals strengthen the Audit Firm Governance Code in key areas of accountability and firm resilience. The revisions enhance and clarify the role played by partnership boards in holding management to account and separate the roles of board chair and senior partner/chief executive.

They introduce criteria for board composition and reinforce the position of independent non-executives within audit firms. The proposals also emphasise the importance of long-term sustainability, people, culture, and employee engagement, in line with the UK Corporate Governance Code.

Mark Baginton, FRC executive director of regulatory standards, said: “Audit firms play a critical role in providing assurance to investors and other users of company reports to ensure their integrity and reliability. Well governed audit firms that act in the public interest are more likely to deliver high-quality audit on a consistent basis.

“Audit firms which have applied the Audit Firm Governance Code have used it as a catalyst for introducing both external challenge into their operations and for improved levels of oversight. These proposals will provide a springboard for further progress in improving audit quality and market resilience.”

The consultation is open until 18 November 2021.