The BEIS white paper ‘Restoring trust in audit and corporate governance’, released back in March, outlined many changes that needed to be made to modernise the UK’s audit market.
One change of interest was the suggestion to broaden the scope of what can be classified as a public interest entity (PIE). Since it clarifies exactly which businesses are affected by the reform, the definition of a PIE lies at the heart of the new proposals.
PIEs are generally identified in the UK as either:
- entities whose transferable securities are admitted to trading on a regulated market;
- credit institutions; or
- insurance undertakings.
The white paper suggests expanding the scope of what can be classified as a PIE to make it so that some large private companies can meet the definition. The expansion has two options:
Option one – businesses with more than 2,000 employees or a turnover of more than £200 million and a balance sheet of more than £2 billion.
Option two – businesses with over 500 employees and a turnover of more than £500 million.
BEIS states that: "the second option focuses specifically on businesses which have high numbers of employees and turnover that would not necessarily be captured in the first test."
The white paper is also debating on whether the PIE market should be increased further to include alternative investment market (AIM) companies, private companies listed on a regulated market, Lloyd’s syndicates, and third sector companies.
This would result in thousands of new businesses being classified as PIEs, with BEIS estimating that an extra 2,066 companies would be brought into scope under option one, or 1,163 companies through option two.
Under the new definition, organisations such as universities, charities and housing associations may be defined as a PIE and will need to meet the proposed tighter audit regulations. Corporate governance, additional disclosures and enhanced audit procedures and reports will have to be taken into consideration if these changes come into effect.
These stricter audit provisions have brought into question whether there is enough resource to manage the extra workload. As the pressures on both organisations and audit professionals increase, some are concerned that the additional regulatory requirements will create bottlenecks when it comes to the availability of registered PIE statutory auditors. Whereas others believe that the significant growth in the number and scale of the PIE audit market participants could represent an opportunity for positive growth for the market.
The consultation process to the white paper is currently taking place. In the meantime, you can read the full BEIS publication here: ‘Restoring trust in audit and corporate governance’.