How selling your practice can end its audit registration

General information for practice owners, current to September 2026. Regulation numbers refer to the UK Audit Regulations and Guidance effective 1 June 2025. Rules and deadlines change — take your own advice, and speak to your registering Institute, before acting on any of this.

Selling a practice involves agreeing price, structure and what happens to staff. If your firm is audit registered, you also need to settle early whether the firm will still qualify as a registered auditor once the shares have moved. If it will not, the audit fees can be lost from completion day.

A firm keeps its audit registration only while it continues to meet an eligibility test. That test is about control, and specifically about who holds the votes. If the wrong percentage goes to the wrong person, the firm fails the test on the day the transfer completes.

Why regulators are watching ownership changes more closely

Two things have changed. Outside investors have been buying into UK accountancy at pace, and many of them are not audit qualified. The regulators have responded by watching ownership changes more closely.

From 20 April 2026, firms on the FRC's register to audit public interest entities must notify the FRC as early as reasonably possible ahead of planned governance or ownership changes, including restructuring and private capital investment. That replaced an allowance to notify within ten working days after the changes had completed. Anthony Barrett, the FRC's Executive Director of Supervision, framed the reason plainly: the audit market is changing, with increasing restructuring activity and private capital investment across the sector, and the FRC wants visibility during periods of significant change.

Owner-managed firms are generally not on that register. The same expectation reaches them through their recognised supervisory body. ICAEW's own position is that any audit registered firm considering a change of ownership to introduce private capital should engage with the FRC and its supervisory body as early as possible — and that those discussions are held in confidence.

How the control test works

For any firm that is not an unincorporated sole practice — so partnerships, LLPs and limited company practices, including incorporated sole practices — regulation 2.03 sets the additional eligibility requirements. Two of its limbs decide whether a sale keeps the firm eligible:

• Regulation 2.03b — the firm. Individuals who hold an appropriate qualification, together with registered auditors, must hold at least a majority of the voting rights that enable them to direct the firm's overall policy or alter its constitution.
• Regulation 2.03c — the board. The same group must hold at least a majority of the voting rights in the management board, on the same basis.

Both limbs have to hold, so a firm that passes the shareholder test and fails the board test is not eligible. The test measures the right to direct policy or change the constitution. Economic ownership does not enter into it. A shareholder with 40% of the equity and no votes on constitutional matters does not count towards the test, while a 10% holder with a veto over the articles does.

There is a related trap in regulation 2.10. Where one registered auditor is a principal or shareholder in another registered auditor — for example in a group structure — its interests at meetings of principals, the management board or shareholders must be represented by an individual who holds an appropriate qualification. A finance director without that qualification cannot fill the role.

How the regulations define a majority

The regulations define majority as more than 50% — unless the firm's constitution specifies a higher percentage of those rights is required for decision-making, in which case majority means that specified percentage or more. Decision-making here covers all management or ownership decisions that direct overall policy or alter the constitution.

Shareholders' agreements commonly set a 75% threshold for constitutional changes to protect minority holders. If yours does, the audit control bar rises from 51% to 75%.

The second point is arithmetic. If all principals or shareholders have equal voting rights, at least a majority of them must hold an appropriate qualification. On a four-director board with one vote each, two audit-qualified directors hold exactly 50%, which is not more than 50%.

Deadlines after a failed control test

If the test fails, the regulations allow a short period to put it right.

Regulation 2.11 requires a registered auditor to tell its registering Institute in writing as soon as practicable, and not later than ten business days after the event, about a long list of changes — including new or departing principals and responsible individuals, changes to the management board, and, for a corporate practice, any change in the name or address of a shareholder or anyone with an interest in the shares, and any change in the number of shares held or in which anyone has an interest. Deals trigger most of that list at once.

Regulation 2.17 is the sharper one. If the firm ceases to meet the eligibility requirements of regulation 2.02 or 2.03, it must notify the Registration Committee in writing within ten business days of the situation arising, setting out what has happened and the action it proposes to take. The committee may then grant a dispensation under regulation 2.18 if it is satisfied the firm is taking all practical steps that will remedy the position, and only if continued registration during that period would not adversely affect an audit client or anyone else.

Regulation 2.19 sets the limit. For eligibility matters the dispensation will not last more than 90 days, starting from the date the situation first arose. The date the firm notices the breach and the date it applies make no difference to the start. The guidance states in terms that the 90 days cannot be extended, and that if the situation is not put right in the time allowed, the firm's registration will end.

What a limited company practice's articles must say

Regulation 2.03d deals with how the articles are drafted. Where the firm is a corporate practice, the articles of association must:

• require shareholders to notify the company of any change in the number of shares they hold, whether held directly or indirectly;
• enable the board to require shareholders to supply information about their shareholdings over the previous three years;
• enable the board to require any non-shareholder the directors know or reasonably believe has, or had, an interest in the shares to supply information about that interest over the previous three years;
• enable the board to strip a shareholder of the right to vote if that information is not supplied in the time specified;
• enable the board to strip voting rights where registration is refused or withdrawn on grounds relating to the ownership of a shareholding; and
• require board approval of any share transfer that would result in a shareholder holding an interest representing more than 3% of the aggregate nominal value of the issued share capital.

The last requirement has the most practical effect. A 3% threshold is low, so the board must formally approve almost any meaningful movement in the share register. If your articles were adopted from a generic model years ago, or amended during a reorganisation without anyone rereading regulation 2.03d, check them before a buyer's solicitor reviews them in due diligence. Amending the articles before you go to market costs less than amending them during exchange.

Sole practitioners and the alternate requirement

If the firm is a sole practice, regulation 2.02A applies. The sole practitioner must put in place formal arrangements with an alternate, to take effect in the event of their incapacity or death, and must confirm to the Registration Committee that those arrangements exist. The requirement took effect on 1 June 2025, with a six-month transition, so the deadline to have an alternate appointed was 1 December 2025.

The alternate must be a member of ICAEW, ICAS or Chartered Accountants Ireland, or of ACCA — they do not need to be a registered auditor, and they do not need a practising certificate. There is no expectation that they take on the business. The policy aim is continuity of service for clients and staff, and the alternate could instead effect an orderly transition of clients to a new auditor.

Two cautions from the guidance itself. First, if your alternate is a responsible individual in their own firm, that status does not permit them to act as RI on behalf of your sole practice. Second, choose the alternate on capacity, ability to act quickly, skills and conflicts of interest. And under regulation 2.11d, any change in the alternate's name or address, including if the arrangement ceases, is itself a ten-business-day notification.

For a sole practitioner the alternate is one part of succession planning. Our guide to succession planning for your practice covers what happens to the firm itself.

Private capital and the control test

The control test affects how a deal with an outside investor is structured. An outside investor that takes a controlling economic stake in a firm with audit clients has to be structured so that audit-qualified individuals still control the votes that direct policy and alter the constitution — at firm level and at board level. That can be done, and firms are doing it. It has to be designed into the deal, because a standard share purchase agreement will not produce it.

It also affects the choice of buyer. A buyer who understands audit eligibility will raise it at heads of terms. A buyer who does not may find the problem in the final fortnight and then treat the audit block as a reason to cut the price. We cover the choice of buyer more broadly in PE roll-ups versus selling direct.

What to do before you go to market

1. Write down the voting position. Record the votes that direct overall policy and alter the constitution, at firm level and on the management board separately. The shareholding alone does not answer the test.
2. Read your constitution for thresholds. Any clause requiring more than a simple majority for constitutional or ownership decisions raises the audit control bar to that same number.
3. Count the board. An even-numbered board split evenly on qualification does not pass. Fix it with a casting vote, a change of composition, or a weighting.
4. Check the articles against regulation 2.03d, including the 3% transfer-approval clause.
5. Sole practice? Confirm the alternate is appointed and that the Registration Committee has been told.
6. Model the post-completion position before you sign anything. Run the test on the share register as it will stand the day after completion.
7. Raise it at heads of terms. If audit registration is meant to survive, write it into the heads of terms.

Doing this work before you go to market makes an audit block easier to sell, because a buyer can see that the audit fees will still be there after completion. The same principle runs through increasing the value of your practice generally.