The FRC is holding a consultation on its plan until September. The regulator admits the firms are anxious its proposals might confusingly cut across Britain's plethora of other reviews into audit practice and quality.

The British government earlier this year commissioned Sir Donald Brydon, the London Stock Exchange chairman, to conduct what he envisages as an elaborate and ambitious review into auditing quality.

He has said his review would take a step back and ask what an audit was, what it was for, and how it could be most useful – including the question of whether the public expected too much from auditors after collapses such as Carillion and Patisserie Valerie.

That comes on top of a review of the FRC itself by former Treasury mandarin John Kingman, who has recommended expansive changes to the oversight regime.

And in April, the Competition and Markets Authority released its own recommendations, calling for the big four firms to split their audit and consulting arms into separate operating units to reduce the influence of the consulting practices upon smaller auditing divisions.

Urgent clarity

"We have taken care not to pre-empt the outcome of those reviews, or the consideration of their findings by government," the FRC said on Monday.


"We believe that the changes we are proposing to the ethical standard – in respect of the provision of non-audit services for example – provide urgently needed clarity which will serve to increase confidence that auditors, and those carrying out other public interest assurance engagements, are independent of the entities on whose financial information they are giving assurance."

The FRC said the measure was unlikely to impose significant compliance costs on the big four.

"Although there is the potential for some additional tendering costs for previously allowable services, the feedback we have received has indicated that the market was already moving towards this outcome," the paper said.

"Loss of revenue from the provision of such services cannot be considered a qualifying cost, since the likely outcome of changes in the market is a redistribution of this revenue rather than a significant decrease."

The plan also includes an overhaul of the public interest test: this demands that auditors consider whether any action they take would affect their independence, as perceived by an outsider or third party.

The current version of the test says the perception of an auditors' independence would be that held by another auditor; the new version would change that to the perspective of "an informed investor, shareholder or other public interest stakeholder ... with diversity of thought being an important consideration".