UK ministers are reviewing tougher auditing rules for private companies

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UK ministers are considering scrapping tough auditing rules for private companies as the government seeks to roll back regulations in a bid to boost economic growth.

Business Secretary Jonathan Reynolds and Labor Minister Justin Madders have met with major financial firms and investors in recent months to discuss changes that would cut or designate nearly 600 companies public interest”, according to people familiar with the discussions.

The previous Conservative government pledged to reform the UK’s audit regime after a number of high-profile failures, such as Carillion, retailer BHS and cafe chain Patisserie Valerie.

In 2021, ministers proposed to classify the largest private companies and companies listed in Aim as public interest organizations (PIEs). They took action after the collapse of BHS raised questions about whether audits of unlisted companies should be scrutinized to prevent similar mistakes.

The appointment will put the audits of around 600 unlisted 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 government thinking said the reforms were “ancient history” because tougher audit requirements were seen as “another obstacle, a ceiling on growth”.

Because Reynolds is concerned that the proposals will encourage companies to drop below the 750-employee mark or move overseas, the government may draw up a list of firms designated for “essential” quality or Discard the proposals completely, the person added.

Ministers in recent weeks have vowed to push for growth, and last month ordered 17 major watchdogs to set measures to boost the economy.

On Tuesday, the government forced out chairman of the competition regulator after taking the view that the agency was not focused enough on growth.

The FRC was first tasked in 2018 with improving the quality of testing after high-profile failures. The first Tory government introduced reforms, which included replacing the current regulator with a powerful Audit, Reporting and Regulatory Authority.

But it water proposals by 2022, to reduce the number of new PIEs from 2,000 to 600.

Analysts complained about the regulator’s strict scrutiny of PIEs, with top 10 firm Grant Thornton saying it has pledged to cut 70 per cent of its PIE work in the five years to 2022.

Work was used The Lord’s first speech last year to promise the draft of the Accounting and Administrative Reform Bill. The draft law could still include PIE’s current proposals, one of the people said, and ministers could choose to fast-track the details in parliament.

A friend of Reynolds said the minister was still open to ideas about “special ways” to work on PIE, adding that the commerce secretary was listening carefully to views on the issue and considering the wider impact of the economy of financial reforms.

The Department of Trade and Industry has said it will receive input from interested parties before publishing a draft bill later this year.

“Our priority is to grow the economy and raise living standards for working people and that is why our financial reform is focused on growth and supporting business to invest,” the department added. .