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UK ministers are exploring scrapping promised tougher auditing rules for private companies as the government seeks to restore regulation in a bid to boost economic growth.
Business Secretary Jonathan Reynolds and Employment Minister Justin Madders have met major audit firms and big investors in recent months to discuss watering down or reforms to add about 600 companies to “public interest entities”, according to people familiar with the talks.
The previous Conservative government pledged to reform the UK’s audit regimes after multiple major corporate failures, such as outsourcer Carillion, retailer BHS and confectioner Café Chain Valerie.
In 2021, ministers proposed to classify the largest private companies and AIM-listed companies as Public Interest Entities (PIES). They acted after BHS’s collapse prompted questions about whether audits of non-listed companies should be reviewed in greater depth to prevent similar failures.
The designation would put the audit of around 600 unlisted companies with 750 employees and more than £750m in annual turnover under a tougher regulatory system overseen by the Financial Reporting Council (FRC).
In 2023, Reynolds told the Financial Times that if Labor won power, it would push through long-term reforms. But one person familiar with the government’s thinking said the reforms were now “ancient history”, as tougher audit requirements were seen as “another barrier, a ceiling to growth”.
With Reynolds worried that the proposals would encourage companies to dip below the 750 employee mark or move overseas, the government could instead draw up a list of companies selected for qualitative “importance” or abandon the proposals altogether, the person added.
Ministers have vowed in recent weeks to continue growth and last month ordered the 17 biggest watchdogs to put in place measures to boost the economy.
On Tuesday the government forced The chairman of the competition regulator after taking the view that the agency was not focused enough on growth.
For the first time in 2018, the FRC was tasked with improving audit quality after a rash of high-profile failures. The previous Tory government produced a package of reforms, which included replacing the current regulator with a more powerful auditing, reporting and governance body.
But that demolished Proposals in 2022, reducing the number of new pies from as many as 2,000 to 600.
Auditors have complained about the regulator’s tighter oversight of pies, with Top 10 firm Grant Thornton saying it has pledged to cut 70 per cent of its pie in the five years to 2022.
Labor used theirs The king’s first speech Last year to promise a draft law on auditing and corporate governance. The draft legislation may still include the current pie proposals, one of the people said, and ministers could opt to iron out the details in Parliament.
One Reynolds ally said the minister was still open-minded about the “specific thresholds” that would apply to the pie, adding that the business secretary had listened carefully to views on the subject and considered the wider economic impact of audit reforms.
The Department for Business and Trade said it would welcome views from interested parties before publishing draft legislation later this year.
“Our top priority is to strengthen the economy and raise living standards for working people and that is why our audit reform is focused on growing and supporting business for investment,” the department added.
