Directors could be made liable for errors in firms accounts thanks to audit shake-up

The proposals to make directors personally liable for the accuracy of financial statements are expected to be included in a government consultation to be published in the coming weeks.

The suggested changes to audit policy comes after three independent reviews and increasing calls for an overhaul after a string of accountancy scandals at the likes of Patisserie Valerie and Carillion.

Auditors have long called for company directors to be held responsible for the content of company accounts, similar to the Sarbanes-Oxley law in the US, to ensure their clients give enough resources and attention to preparing their financial statements.

Industry sources have said that the 200-page document will emphasise reform of corporate governance, as well as audit firms and their regulator.

The UK Government is considering forcing companies to introduce stricter internal financial controls, while a new regulator will be given additional powers over directors, including audit committees.

One senior auditor told The Daily Telegraph: “There’s quite a lot in there about UK plc. I think that’s going to come as a shock to people.”

The consultation will also propose widening the definition of “public interest entities”, whose audits are regulated by the Financial Reporting Council, to include large private companies and possibly charities, universities and trade unions.

It has been purported that government officials are also considering broadening the regulatory net to try to protect jobs, pensions and supply chains after the collapse of large private firms such as BHS.

A senior accountant said: “Any organisation that moves from a non-public interest entity to a public interest entity is going to have increased costs and responsibilities so expect howls from businesses about that.”

Senior industry figures have said that new rules on reporting of environmental, social and governance metrics could be introduded through additional legislation without consultation in order to have them in place ahead of the COP26 climate summit which will be hosted by Glasgow in November.