Changes for accountancy firms to keep a close eye on in 2025

From an increasing spotlight on private equity investment to substantial changes in the ICAEW’s Code of Ethics, 2025 is shaping up to be a year filled with both opportunities and challenges for the accountancy and audit sector. What key areas should accountancy firms keep a close eye on over the coming year?

Continued Private Equity Investment

One of the defining trends in the accountancy and audit sector for 2024 was the influx of private equity investment. This momentum is only likely to continue into 2025. External private capital has primarily been attracted to the potential for consolidation of a fragmented accountancy market, the stable income flow that comes from accountancy and audit workstreams, as well as the possibility for acquired firms to expand into other accountancy-adjunct service lines. Such capital can bring wider benefit too, such as an increase in competitiveness in the audit market and technological innovation and development.

Private equity investment, however, raises the spectre of loss of independence and conflict of interest risks. Both the FRC and ICAEW have indicated that they are not in principle against participation of external private capital, and are ready to engage in dialogue with firms considering a change of ownership to introduce private capital. However, firms and their acquirers need to think through all regulatory implications carefully, especially given the perception that private equity-backed firms may be pressured to prioritise higher-margin practices, which could potentially be at odds with audit independence and quality.

Over the coming year, we can certainly expect to see a marked increase in dialogue – and perhaps successful deals – between target accountancy firms and their acquirers, as the sector becomes increasingly attractive for private equity investment.

Changes to the ICAEW Audit Regulations

Another key trend for accountancy firms and their private equity investors to monitor is the recent changes to the control requirements in the amended ICAEW Audit Regulations. The new amendments took effect on 1 October 2024, and members firms are required to comply by 1 April 2025.

In essence, under the new regime, decisions on all matters that direct the overall policy of the firm or alter its constitution are required to be controlled by qualified persons, whether they are decisions made by holders of voting rights or a firm’s management board. This typically means that qualified persons should hold a majority in voting rights (i.e. over 50 percent). However, where a firm’s governance documents mandate a specific approval percentage higher than a simple majority, then those decisions must also be capable of being made by qualified persons. For instance, where a decision requires a two-thirds majority, then the qualified members entitled to vote for that decision must be greater than two-thirds. These changes may present potential challenges for larger firms which have non-qualified persons in management positions, or where external investors wish to retain control over certain aspects of decision-making.

Given the upcoming deadline, ICAEW firms should carefully examine whether their current constitutional arrangements are likely to comply with the amended Audit Regulations. Likewise, those looking to acquire ICAEW member firms should also take care to ensure that ownership interests and the constitutional structure of the firm post-transaction are compliant. Failure to do so will obviously have significant implications for the firm’s continued audit registration, including its ability to issue audit reports.

Updates to Professional Behaviour Standards

How ICAEW members interact professionally with clients, colleagues and the wider public is another key area likely to be subject to regulatory scrutiny in 2025, and is certainly in step with approaches adopted by other professional regulators, including the SRA and FCA.

The ICAEW consulted last year on proposed amendments to the fundamental principle of professional behaviour in its Code of Ethics. The final wording, to be implemented in early 2025, will now read: “A reasonable and informed third party would expect that a professional accountant, in their professional life, treats others fairly, with respect and dignity and for example does not bully, harass, victimise or unfairly discriminate against others”.

While additional guidance can be expected soon, the ICAEW has already indicated that activities both inside and outside the physical workplace would be captured under the revised provision. Representing an employer at a conference, posting on social media platforms as a chartered accountant, or indeed conduct at a work-organised Christmas party are all professional settings which may fall under the new wording. It is worth remembering also that inappropriate conduct arising in those settings may trigger the duty on all member and member firms to report potential misconduct to the ICAEW under the Disciplinary Byelaws.

Accordingly, ICAEW member firms would be well-advised to bear these upcoming changes in mind over the coming year, especially as they undertake regular evaluation of their current policies, training programmes, and wider firm culture in relation to matters involving bullying, discrimination, and sexual misconduct.

Artificial Intelligence (AI)

Development of ethical standards and guidance around the appropriate use of AI, in particular Generative AI, will likely be another key priority for regulators in the accountancy sector this year.  

Last year, the ICAEW held a number of consultative roundtables on proposed guidance regarding the ethical use of AI. It is also set to introduce, in early 2025, the IESBA Code of Ethics provisions relating to technology into the ICAEW Code of Ethics. The new provisions will focus on the risks that new technologies pose for the profession, as well as the need to maintain fundamental principles of professional competence, due care and confidentiality.

In a similar vein, the FRC has recognised the growing use of new technologies in technical actuarial work, recently publishing updated guidance for actuaries on the use of AI and machine learning when applying the principles-based Technical Actuarial Standard 100.

Over the course of 2025, accountancy and financial services regulators will need to continue to grapple with developing ethical standards and guidance which ensure that the benefits of AI can be harnessed while also addressing ongoing concerns around bias, transparency, fairness and accountability. It will be worth monitoring the extent to which such standards incentivise the responsible use of AI, assist in the development of clear internal policies and training for employees, and more importantly maintain the overarching duty of professional judgment for accountants.

Audit, Reporting and Governance Authority (ARGA)

Following the long-awaited mention of the draft Audit Reform and Corporate Governance Bill in the King’s Speech last year, the transition from the FRC to ARGA has finally been set in motion. The briefing notes to the King’s Speech provided a broad indication of ARGA’s likely regulatory perimeter, including the expanded definition of Public Interest Entities (PIEs) to bring the largest private companies within its remit, as well as vesting the new regulator with additional powers to investigate and sanction company directors (who are not necessarily qualified accountants) for breaches of financial reporting and audit standards.

There still remain, however, a number of steps before publication of the draft bill. While the final transition from the FRC to ARGA is unlikely to be for a few years yet, it may nonetheless be worth keeping an eye on the key themes that emerge from the draft bill when laid before Parliament later in the year.  

Overall, with the plethora of anticipated changes outlined above, 2025 is looking to be an interesting year ahead for the accountancy sector and those wishing to invest in it. Prudent firms will carefully consider their commercial and regulatory responses to ensure that they mitigate any regulatory risks and can best capitalise on all the opportunities that these changes will bring.