The theoretical aim is to improve regulatory standards after high profile corporate failures such as Carillion and BHS.
Also, company directors will face more responsibility to ensure accounts are accurate, or face tougher penalties.
Business Secretary Kwasi Kwarteng said the changes would help restore confidence in business.
There will now be a 16-week consultation on the proposals.
The BBC reports that the business of auditing companies' accounts, and ensuring they are a fair reflection of their financial health, is dominated by four accountancy firms: KPMG, Deloitte, PwC and EY.
However, there is concern that providing both accountancy and auditing services creates a conflict of interest.
Under the new rules, large companies would be required to use smaller auditing firms to conduct part of their annual audit, in an attempt to dilute the Big Four's dominance.
The new proposals would require KPMG, Deloitte, PwC and EY to make their audits more rigorous.
They could face a cap on the number of companies on the FTSE 350 index they may audit, if those improvements don't go far enough.
The government said last year almost a third of audits inspected on the FTSE 350 were in need of improvement.
All of this is rather amusing, given that when I was studying to be an FCA (back in the late 80's) these issues were very much "hot topic" issues at the time.
Seemingly nothing changes, no matter what regulatory shake-ups occur!
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