How the definition of Public Interest Entities has evolved

This briefing note traces the origins of the PIE concept from its inception in EU directives through its incorporation into UK legislation and subsequent developments, culminating in the proposals under review in 2025. It traces the origins of the PIE concept from its inception in EU directives through its incorporation into UK legislation and subsequent developments, culminating in the proposals under review in 2025.

Background

The concept of a PIE was introduced against the backdrop of the financial crisis in 2008 that underscored the need for greater transparency and accountability. Originally developed at the EU level through the 2013 Accounting Directive and the 2014 Audit Directive, the definition was designed to identify those entities whose financial reporting has a significant public impact. In the UK, this framework was adopted through amendments to the Companies Act 2006, laying the foundations for enhanced audit and governance requirements for listed entities, credit institutions, and insurance undertakings.

Policy Journey

1. EU Origins
   The introduction of the PIE definition by the EU was driven by a need to improve audit quality following high-profile corporate failures during the wider financial crisis post 2008, such as Northern Rock and Lehman Brothers. The directives aimed to ensure that entities with transferable securities traded on regulated markets, as well as banks and insurers, were subject to more stringent audit regimes. This was intended to protect investors and the wider public interest by requiring higher standards of transparency and accountability.

2. UK Adoption and Evolution
   The UK integrated the principles of the EU framework into its domestic law, notably through amendments in 2016 to the Companies Act 2006. Here, the definition was applied to a specific range of entities—primarily those with publicly traded securities. Over time, the Financial Reporting Council (FRC) issued non-mandatory guidance to clarify the scope and application of PIE requirements; for example, its 2022 Guidance on the Strategic Report explicitly confirmed that traded LLPs and banking LLPs meeting the quantitative thresholds must be treated as PIEs and publish a strategic report, thereby ensuring the regime accurately reflects both the risk profiles and public importance of these entities. By 2025 the number of PIEs in the UK exceeded 1500.

   In addition, further guidance has been issued by the FRC, setting expectations for reporting and governance of listed companies, which impacts almost 40% of registered UK PIEs. The revised Corporate Governance Code 2024 requires boards to declare the effectiveness of their material internal controls and the Minimum Standards for Audit Committees and the External Audit (2023) which set out best practice guidance on external audit tendering.

3. Audit Reform and Corporate Governance Draft Bill 2025
   Recent policy discussion focusses on the potential for an expanded or revised PIE definition. Key considerations include:
   • Broadening the Scope: Extending PIE status to large private companies, certain LLPs, and significant third-sector organisations, recognising that their failure could have wider systemic impact.
   • Quantitative vs Qualitative Thresholds: Debating whether a sole quantitative threshold (e.g. the proposed 750:750 criteria, where an entity could be considered a PIE if they have over 750 employees and £750 million in turnover each year) is sufficient or if additional qualitative factors should also be incorporated (such as if an entity could be considered “critical infrastructure”) to ensure only those entities with a clear public interest are captured.
   • Regulatory Proportionality: Reflecting on how regulatory oversight could be scaled to each organisation’s actual risk, public impact and existing oversight. Smaller entities and those entities that already are subject to significant regulatory oversight and direction (such as the care home sector, which is overseen by the Care Quality Commission) often face a complex layering of disclosure, governance and audit requirements.

The implications of PIE status on reporting, governance, regulation and audit requirements

PIE status leads to increased reporting, governance, regulation and audit requirements, as set out in the following table:

Impact Lens	Area	PIE Entity
Business/Directors	Audit Committee	Must establish an independent audit committee, which is comprised of a majority of independent Directors, responsible for audit oversight.
	Corporate Reporting	Additional reporting e.g. a non-financial information statement if over 500 employees.
	Governance Standards	Listed PIEs should comply with UK Corporate Governance Code and enhanced governance standards on a comply or explain basis.
	Impact on Directors	Increased personal accountability; directors with a financial qualification, including Non-Executives who are financially qualified, may be sanctioned by the FRC for audit/reporting failures.
Auditors	Audit Requirements & Regulatory Oversight	Must appoint a PIE registered auditor who is subject to enhanced regulatory standards, direct oversight and regular inspections by the FRC.
	Auditor Independence	Stricter independence rules including mandatory audit firm rotation every 10 years.
	Audit Approach	The audit scope is set by reference to the risk environment and the stakeholders needs. The increased complexity and risk of PIEs and the focus of shareholders on distributable profit, determines the level at which audit materiality is defined, and the incremental scope of work.
	Audit Report Requirements	Must produce an enhanced audit report with a number of additional disclosure requirements, including key audit matters and going concern assessments.
	Non-Audit Services	Prohibited from receiving certain non-audit services; permitted services are subject to a 70% fee cap.

Conclusion

The ongoing reform debate offers an opportunity to improve levels of disclosure, focus director accountability and extend audit scrutiny to a range of important entities in the UK that are currently not covered by the existing PIE definition or other regulatory regimes.

A more proportionate PIE regime could reduce unnecessary burdens on firms that are not systemically important, maintaining rigorous oversight where it is most needed. Moreover, refining the definition to reflect both quantitative and qualitative measures may help prevent unintended regulatory consequences, such as diluting the attractiveness of UK market, and promote growth within the UK economy.

Call to action This short piece on the evolving definition of PIEs is intended to give some context for any changes that may come through legislation. Our proposition is that heightened accountability for Directors, better and more timely disclosure by Companies, and an extended more rigorous audit regime will provide better protection for investors and for the public interest more generally. Our forthcoming papers and research will examine:

• The roles, responsibilities and accountability of Directors and Auditors
• The overlap between regulatory requirements on sector specific businesses
• The key factors involved in previous corporate failures in the UK, and the relationship with existing reporting, governance and audit requirements.

The Centre for Public Interest Audit (CPIA) recommends further academic research and stakeholder engagement to ensure that proposed reform measures are meaningful and proportionate, safeguarding public interest without stifling market growth.

About the Centre for Public Interest Audit

The Centre for Public Interest Audit is a policy and research institute formed to shape best practice and inform the future of public interest entity audit in the UK. Our purpose is to drive quality and earn trust in UK PIE audit, in turn helping to build confidence in Britain’s capital markets. Our strength is the combination of our collective expertise to challenge the status quo; we are action-oriented, forward-looking and seek to provide objective perspectives on audit quality.

A trusted, forward-looking profession mitigates risk, builds confidence and enables investment in UK capital markets.

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