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UK ministers are considering lifting stricter audit rules on private companies as the government seeks to scale back regulation in a bid to boost economic growth.
Business Secretary Jonathan Reynolds and employment minister Justin Madders have met with major auditing firms and big investors in recent months to discuss reforms that could identify around 600 companies as “public interest entities”, according to people familiar with the discussions.
The former Conservative government promised to reform the UK's audit regime after high-profile business failures, such as foreigner Carillion, retailer BHS and cafe chain Patisserie Valerie.
By 2021, the ministers proposed to classify the largest private companies and companies listed in the Objectives as public interest entities (PIEs). They did so after the collapse of BHS raised questions about whether audits of unlisted companies should be scrutinized more closely to prevent similar failures.
The designation will put the audit of around 600 unregistered companies with 750 employees and more than £750mn in annual turnover under a strict regulatory regime overseen by the Financial Reporting Council (FRC).
Reynolds told the Financial Times in 2023 that, if Labor wins power, it will push through long-delayed reforms. But one person familiar with the government's thinking said the reforms were now “ancient history” because stricter audit requirements were seen as “another barrier, a ceiling on growth”.
With Reynolds worried that the proposals would encourage companies to go below 750 workers or move overseas, the government could instead draw up a list of firms selected for “priority” standards or scrap the proposals altogether, the person added.
Ministers in recent weeks have vowed to grow, and last month they ordered 17 of the largest governments to put in place measures to boost the economy.
On Tuesday, the government out by force chairman of the competition administration after taking the view that the agency was not focused enough on growth.
The FRC began working in 2018 to improve the quality of audits after a series of high-profile failures. The former Tory government has drawn up a raft of reforms, including replacing the current regulator with a stronger Audit, Reporting and Regulatory Authority.
But it he was watered proposals by 2022, to reduce the number of new PIEs from a maximum of 2,000 to 600.
Auditors have complained about the stricter scrutiny the regulator has applied in relation to PIEs, with top 10 firm Grant Thornton saying it had pledged to cut 70 per cent of its PIE work in the five years to 2022.
The workers used it The King's first speech last year to promise the draft Audit Reform and Consolidated Administration bill. The bill may include current PIE proposals, one of the people said, and ministers may choose to fast-track the details to parliament.
Another Reynolds colleague said the minister was still open-minded about “certain hurdles” to applying to PIE, adding that the business secretary was listening carefully to comments on the matter and considering the wider economic impact of the audit reform.
The Department of Business and Trade said it would welcome the views of interested parties before publishing the bill later this year.
“Our priority is to grow the economy and raise the standard of living of working people, so our audit reform is focused on growth and supporting businesses to invest,” the department added.