The Government is currently considering various ways of reforming the UK’s audit system, including definitions for businesses that require a statutory audit.
As part of this, the Department for Business, Energy and Industrial Strategy (BEIS) has released a new whitepaper, which asks questions about what organisations should be classified as a Public Interest Entity (PIE) and whether they should be subject to regular audits.
Currently, the definition of a Public Interest Entity (PIE), according to the revised Statutory Audit Directive (SAD), is as follows:
- Entities governed by the law of an EU Member State whose transferable securities are admitted to trading on a regulated market of any Member State;
- Credit institutions;
- Insurance undertakings; or
- Entities designated by Member States as public-interest entities, for instance, undertakings that are of significant public relevance because of the nature of their business, their size or the number of their employees; incidentally, application of this fourth criterion varies significantly across Member States.
This definition was agreed as part of an EU directive, which has remained relatively unchanged for more than a decade. Now that the UK has left the EU it is looking at ways it can reform audit regulations.
PIEs and how they are defined are, therefore, an essential part of the Government proposals for corporate governance and audit reform as it determines which entities are included in it.
Within the BEIS paper, it outlines new recommendations which could, if implemented, more than double the number of PIEs while also extending the regulations to which they must conform.
The BEIS has given three prospective options to broaden the scope of PIE classification. These are:
- Private companies with more than 2,000 employees or a turnover higher than £200m and a balance sheet above £2 billion
- Private companies with over 500 employees and a turnover of more than £500 million
- AIM businesses with market capitalisation over €200 million.
The report also asks whether universities and charities should be brought into the scope of audit as well, considering the potential detrimental impacts should such organisations collapse.
Extending the definition of a PIE could have a considerable impact on many businesses that have previously not had to undertake an audit by law.
Although the Government is yet to confirm which approach it intends to finally take, businesses should remain aware of the ongoing reforms to audit so that they can access help should they need it.
If you are looking for advice on audits, please contact your Seymour Taylor representative today or email enquiries@stca.co.uk or call 01494552100.
This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing 1 October 2021.