On 7 September 2026, the UK’s Department for Business, Innovation, Science and Trade (BIST) launched a 70 page consultation on ‘Modernising Corporate Reporting to support long-term economic growth’. This review aims to reduce red tape and save UK businesses £230 million annually.
The consultation is very surprising in two ways. Firstly, it is extremely far reaching and will potentially have a massive impact on the accounting profession. Secondly, responses are required by 30 November 2026. This means that those who wished to provide input have a very short amount of time to do so.
Over the next two months we will highlight the key changes that the consultation proposes. If you have strong views on these, we encourage you to respond. Here are five of the standout changes:
- Major reduction in narrative reporting
The government announced back in October 2025 that is it intended to significantly reduce the amount of narrative reporting required by UK entities. So this aspect of the proposed changes is not surprising. We anticipate it will be one of the first changes that will be introduced. It proposes a complete removal of the requirement for a directors’ report in an entity’s annual report and the removal of the requirement for a strategic report for most medium sized entities.
This change will remove important contextual information from annual reports. However, feedback from many practitioners we have spoken to is that it will generally be well received. Implementation of this change is likely, but the timescale is unclear.
- A single accounting standard for small and medium sized entities
Accounting rules for small and medium sized entities are currently all included within FRS 102. However, disclosures, in particular, are simplified by the inclusion of FRS 102 Section 1A for small entities.
The consultation proposes a single accounting standard that will apply to all small and medium sized entities. We do not feel that this is particularly controversial, as revisions to FRS102 effective for periods commencing on or after 1 January 2026 effectively mean that disclosures in small and medium sized entities respectively will be quite similar going forwards anyway.
FRS 105 will remain, as will IFRS. The consultation proposes a separate accounting standard for large entities.
- Simplification of source of accounting rules
It is much to the frustration of many preparers and auditors of financial statements in the UK, that there are currently rules based on accounting standards and Companies Act 2006 that have to be complied with.
In order to simplify regulation affecting the preparation of financial statements, the consultation proposes that the detailed accounting regulations in the Companies Act are folded into accounting standards. This feels like a good idea in principle, though how easy it will be to achieve in practice remains to be seen.
Accounts prepared in accordance with IFRS by UK companies currently include some Companies Act disclosure requirements. How easy will it be to remove the need for these legislative requirements, given that UK standard setters have no power to change international standards?
- Removal of audit requirement for medium sized companies
This is perhaps the most radical of all the proposed changes. With effect from p/c 6 April 2025, large companies are defined as those which breach to two out of the following three thresholds: turnover £54M, total assets £27M and employee numbers 250.
Removing the audit requirement for companies smaller than this will clearly impact the audit profession massively. Also, in an environment where steps that practitioners need to take to combat financial crime (e.g. AML checks), seem ever more draconian, this feels a really odd move. Will SMEs actually lose more money from financial crime than they save as a result of not having to invest in an external audit? In practice, evidence suggests that external audit rarely unearths fraud – but it is surely an important deterrent.
We anticipate a significant change to the structure of the audit industry if this change is implemented, with a large number of smaller firms likely exiting the market. This will mean that when an entity requires an audit (for example for borrowing purposes or where it is a charity, for which the audit exemption thresholds are much lower) it will likely have to turn to a much larger firm. The fee charged by that larger firm is likely to be significantly higher.
- Voluntary assurance standard for SMEs
In order to allow more SME businesses to take advantage of audit exemption, the consultation imagines a new voluntary assurance standard pitched at a level designed to give lenders confidence in SME accounts.
This makes sense where a level of assurance is required for SMEs, but if this is a voluntary standard, how many SME businesses are really likely to appoint external accountants to carry out the relevant engagement? Voluntary assurance standards have been in existence for many years in the UK and promoted hard, in particular by ICAEW, but little use has been made of them in practice.
If the audit requirement is to be removed for SME businesses, perhaps mandatory assurance (something like independent examination for charities) would be a better way to go?
For further information on the changes the Modernising Corporate Reporting consultation proposes, keep an eye out for next month’s newsletter.
The full consultation document can be accessed here. It also provides information on how you can respond to the consultation questions. As mentioned above, all responses are required by 30 November 2026.
Peter Herbert
September 2026
