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May 13 — New U.K. audit requirements for public interest entities (PIEs) won't include companies listed on the London Stock Exchange's AIM, under a plan by a U.K agency.
Following a meeting in December 2015, the U.K. Department for Business, Innovation & Skills decided May 10 to exclude AIM-listed entities from its framework to implement the European Union Audit Directive and Regulation (ARD).
AIM is a London Stock Exchange sub-market, formerly known as the Alternative Investment Market, that lists small, growing companies and enables them to float shares under a more flexible regulatory system than is applicable to the LSE's main market.
The U.K. Department for Business, Innovation & Skills chose to restrict the European Union Audit Directive and Regulation application to the definition of PIEs in the EU regulation—even though EU member states are allowed to expand the definition of PIEs beyond ARD's provisions (11 APPR 796, 8/28/15).
The EU regulation defines PIEs as:
The regulation's definition of listed entities doesn't include entities whose securities aren't freely transferable or tradable.
The U.K. regulations will adopt what BIS called a minimal implementation approach, which the department said is intended to ensure that legislative changes allow maximum flexibility for auditors, their clients and regulatory bodies.
BIS reported that it received broad support for this approach from the consultation's 25 respondents, with a majority agreeing “with the Government's view that the definition of a PIE should not be expanded beyond the definition provided for in the Directive.”
In implementing the EU regulation, BIS will require all PIEs to put their audit services up for tender at least every 10 years and change their auditors at a minimum every 20 years.
The department said that its plan “also introduces significant new controls on the provision of non-audit services by statutory auditors to their audit clients.”
Though BIS decided to exclude AIM-listed companies in implementing ARD, the department will to apply the EU regulation to limited liability partnerships (LLPs)—U.K. entities in which the liability for debts that can't be paid is split among partners.
“This would continue the current approach of making LLPs subject to the same audit regulatory framework that applies to companies and other business entities,” BIS said.
LLPs with listed debt or that offer banking or insurance services must be covered by ARD in any case, the department noted.
BIS has designated the U.K. Financial Reporting Council (FRC), which sets U.K. and Irish accounting, auditing and actuarial standards, as the nation's designated competent authority for implementing ARD requirements (11 APPR 1022, 11/3/15).
Under the BIS plan, FRC would limit its audit inspections, investigations and disciplinary cases to PIEs, and would oversee the work of U.K. recognized supervisory bodies for other audits.
U.K. recognized supervisory bodies include such organizations as the Association of Authorised Public Accountants and the Institute of Chartered Accountants in England and Wales.
Parliament must transpose BIS's framework for implementing ARD, which takes effect June 17, 2016, into U.K. law.
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FMI The BIS document is available at http://src.bna.com/eZI
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