By Mridul Khariwal, Audit Director at Macalvins Group
In the field of auditing within the UK, a complex situation has arisen due to the intricacies involved in categorising businesses as Public Interest Entities (PIEs).
PIEs hold a unique and significant influence on the economy. It is, therefore, essential that there is transparency and accountability for such entities, which is why regulatory frameworks impose more rigorous auditing and reporting requirements.
These regulations are designed to safeguard the interests of investors, public trust, and the overall integrity of financial markets.
However, while there are official definitions, confusion can quickly arise among stakeholders due to the diverse criteria used to label companies as PIEs which at present are determined by no less than three pieces of legislation.
This matter is particularly evident when considering the relationship between a company’s status on the stock market and its potential classification as a PIE.
Generally, companies listed on the primary stock market automatically receive the PIE designation, but the same is not necessarily true in every case for companies listed on alternative market tiers.
Consider, for example, a company listed on the Acquis Market – a platform often populated by smaller, emerging businesses.
These businesses may escape the classification as a PIE due to their relatively modest scale when they list on the growth market.
Nevertheless, if the same company were to move up to the main market, it could suddenly fall under the PIE category, triggering the necessity for stricter regulatory adherence.
Given the evident confusion surrounding PIE classification based on market listing, experts and regulators are advocating for a more standardised and consistent approach.
Clarity in this area would certainly be welcomed by many, which is why current proposals revolve around establishing a universal framework that outlines comprehensive criteria for PIE classification.
Known as the 750/750 framework, it proposes that PIEs be classified by factors such as having revenue over £750 million and employing more than 750 staff, alongside other metrics related to assets and market capitalisation.
Implementing these changes would ensure that regardless of their listing status, the most important entities meet a standardised and specific set of criteria to be recognised as PIEs.
As the auditing sector grapples with the intricate discourse surrounding PIE classification and its connection to market listing complexities, the pursuit of regulatory clarity remains of utmost importance.
Amidst ongoing discussions, one thing is clear, companies with a significant impact should be held to rigorous standards, regardless of their listing on the active markets.
The existing expectations and importance of PIEs is, to some extent, already recognised by the requirement for existing auditors to obtain additional PIE certification.
This ensures adherence to the strictest regulatory standards and levels of service, and it is why becoming a PIE auditor is a demanding journey filled with intricacies and challenges.
As auditors, we shoulder the significant responsibility of meticulously examining and certifying the financial reports of PIEs, but we must also navigate potential challenges and complexities related to compliance.
This in itself is not wrong, as PIE auditors should be held to a higher standard due to the increased importance of their clients.
We must be able to navigate intricate financial landscapes, identify potential inconsistencies, and adhere to an array of compliance standards.
The stringent demands of PIE audits call for unparalleled accuracy, as any oversight could lead to severe repercussions for us, as auditors, and the companies we are responsible for.
The gravity of the responsibility and unwavering dedication to precision, adherence to compliance, and maintaining financial integrity is not lost on auditors.
In fact, it is why many firms have opted to move away from becoming PIE auditors due to the significant financial and administrative burdens associated with the role.
Having recently undertaken the accreditation to become PIE certified, we know first-hand the challenges that firms face and the continued expectations of our practice.
It is, perhaps, no surprise that we are one of fewer than 45 firms to have taken the steps necessary to audit PIEs, and are, by our size one of the smallest practices to do so.
Currently, the list of PIE auditors is dominated by large corporate audit firms that possess the necessary resources to meet compliance requirements and serve the largest PIEs.
However, this has meant that many relatively small PIEs are left struggling to find an adequate service, due to either a lack of interest from larger audit firms, who are more focused on larger entities or the pricing of audit services being too high to make commercial sense.
Thankfully, like us, there are a handful of small audit firms that have taken the initiative to become registered PIE auditors.
We offer a glimmer of hope to smaller PIEs, who must meet the same high accounting standards expected of all PIEs with fewer resources.
We are proud to have gained accreditation, but we are all too aware of this gap in the market that is only growing as more entities are classified as PIE due to being dragged into this space by unclear and inconsistent definitions within key legislation.
Like many of our smaller peers, we are committed to offering competitive and personalised audit services to corporations that have recently transitioned.
However, there is still a clear demand for greater expertise in this space, which we will continue to service to ensure that smaller entities maintain compliance and receive greater insight.