The government plans to make it easier to clawback bonuses paid to executives of failed companies in what is being billed as the biggest shake-up of Britain’s corporate governance rules in decades, with ministers vowing to target negligent auditors and rogue directors. Part of a sweeping series of reforms designed to break the dominance of the big four accounting firms, the new measures were outlined by the business secretary Kwasi Kwarteng in a consultation launched on Thursday. If adopted the changes would represent the culmination of years scrutiny of the UK’s rules on financial reporting and corporate governance after the failures of BHS, the department store sold off by Sir Philip Green, outsourced services company Carillion, and Thomas Cook, the tour operator that collapsed after 178 years in business. Kwarteng said the changes were “sensible, proportionate reforms”. Lord Callanan, the government minister for corporate responsibility, said the reforms would hit “auditors and rogue directors who have been asleep at the wheel”. The UK’s corporate governance rules will be updated to ensure that directors’ contracts include provisions, already in place in banks, to claw back past bonuses and stop future payouts if companies collapse or serious failings are identified. They would force bigger companies to make annual “resilience statements” detailing risks to the business, including climate risks. Directors would also have to disclose more justification for dividend payments or big executive bonuses. Ministers want to widen the net of companies affected by corporate governance standards to include the largest privately owned companies and bigger companies that now enjoy lighter disclosure requirements on the Alternative Investment Market. The consultation, which will run for 16 weeks, will also move forward previous proposals to overhaul the auditing sector, which failed to protect against bankruptcies. Large companies will be forced to hand part of their work to smaller auditors outside the “big four” accountants under proposals by the government. Those auditors – Deloitte, EY, KPMG and PwC – could also face a cap on their market share among FTSE 350 audits “if competition in the sector does not improve”, the government said. However, the ministers have stopped short of requiring joint audits by two auditors for large companies, a key recommendation from a review by the Competition and Markets Authority. They said smaller companies would not have the resources to audit the biggest firms. The proposals will provide tougher legal powers to the Audit, Reporting and Governance Authority (Arga), a new regulator first announced two years ago to replace the much-criticised Financial Reporting Council. Arga will have the power to force accountants to split their audit and non-audit functions, force companies to correct errors in their accounts, and investigate directors themselves for financial reporting failures. Ed Miliband, Labour’s shadow business secretary, welcomed the tougher rules for directors, but questioned whether the audit reforms went far enough. “It is regrettable that on the crucial issue of competition in the audit sector, the package waters down some of the independent recommendations for reform, including on mandatory joint audits between the big four and challenger firms,” he said. “The option of a structural split between the audit and non-audit parts of business practices must be kept on the table.” The Confederation of British Industry, the biggest business lobby group, said it had concerns on both the audit proposals and the changes for directors. Matthew Fell, the group’s chief policy director, said: “Many businesses are still to be convinced that mandating shared audits will get to the heart of the issues around rigour and quality, not just add complexity.” He praised the government for avoiding the “more burdensome aspects” of US rules for directors, but said “these measures will require careful implementation to be meaningful without stifling entrepreneurial spirits”. Accountants broadly welcomed the reforms. The Institute of Chartered Accountants in England and Wales, a membership body, said the establishment of ARGA should be the top priority for government implementation. Jon Holt, head of audit at KPMG UK, said the proposals were a “once-in-a-generation opportunity” for reform and that the resilience statement was “one of the most important innovations in meaningful corporate reporting in decades”. Hywel Ball, the UK chair of EY, said the scope of audit responsibilities needs to be expanded and clarified on areas such as environmental, social and governance reporting, and fraud. He added that the value of more accountability for company directors “far outweighs the cost of additional regulation”.