Public Interest Entity (PIE) designation is adding another layer of audit-related obligations to an already complex regulatory environment, resulting in potential competing audit priorities for UK headquartered companies.

That’s the conclusion of analysis by the Centre for Public Interest Audit (CPIA), which says multiple audit regulatory bodies create intersecting oversight challenges for corporate governance and market confidence. Such complexity challenges both audit quality and market confidence in UK capital markets, the CPIA says.

Many companies already face increased scrutiny due to their broader regulatory obligations, the CPIA warns. “This scrutiny comes from multiple regulatory organisations, each working within their own mandates and frameworks. The result is a fragmented environment with intersecting and multilayered oversight across audit regulation, governance, and reporting requirements.”

The CPIA says the fragmented regulatory landscape creates challenges for PIE companies trying to demonstrate accountability while managing reasonable compliance burdens. Understanding this broader regulatory context is crucial for effective corporate governance, maintaining public trust and promoting meaningful audit reform through informed government policy, the CPIA says.

Supporting proportionate regulation

Governance, audit regulation and reporting should not create disproportionate demands on business, the CPIA says. “We welcome the government’s ambition to streamline the regulatory framework through targeted policy intervention. This approach should build a more resilient audit market and support a risk-focused strategy. 

“The goal must be striking the right balance between investor protection and stakeholder safeguards while supporting the attractiveness of UK capital markets and maintaining public trust in professional standards.”

A call for coherence

In its report, the CPIA outlines key regulations across audit, governance, reporting and regulatory requirements to highlight the scope of obligations companies must manage – not all directly linked with their PIE status. Although the Financial Reporting Council (FRC) sits at the heart of the audit framework, regulatory responsibility is held across numerous bodies, depending on the sector in which companies operate, each contributing to the wider framework of investor protection and market confidence.

Sector-specific regulators highlighted by the report include the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) in the financial services sector, Ofgem in the energy sector, and the Pensions Regulator. Meanwhile, the Care Quality Commission requires audit professionals to meet specific standards when examining the accounts of care providers.

“These regulatory bodies are only a small example of the regulatory bodies that exist. Each has a clear mandate, but these mandates often intersect. This creates potential for competing requirements that challenge both regulatory reform efforts and policy intervention strategies,” the CPIA says. The compliance challenge becomes greater for companies with global operations, it adds. 

Barriers to market entry

The CPIA also warns that the FRC’s objective of increasing the number of PIE auditors conflicts with the perceived unattractiveness of PIE audits among mid-tier audit professionals, undermining efforts to enhance audit reform and build a more competitive market.

ICAEW’s 2025 report on the evolution of mid-tier accounting firms highlights the cost of compliance, limitations in capacity and resources, and concerns around reputational risk as factors deterring firms from entering the PIE audit market driven by a sentiment that PIE audits are high risk and low reward.

Alex Russell, ICAEW’s Head of Audit and Assurance Strategy, says: “The CPIA’s analysis just goes to underline the complex regulatory picture that companies face. At a time when some of the government’s major stated aims are to reduce burdens on companies, enhance the UK as a place to do business and encourage new entrants into PIE audit, this can be a driver of costs to business and a barrier to audit firms.

“ICAEW has long supported proportional regulation and simplification of thresholds – where feasible and not detrimental to the quality of corporate reporting and audit – and has supported the government’s Better Regulation project.”

Building PIE audit capacity 

Last week, the FRC launched a new programme to build PIE audit capability and support growth of PIE audits by small UK audit firms. Small firms will be invited to participate in a new Scalebox Programme to develop their audit quality and systems of quality management in compliance with the auditing standard ISQM (UK) 1.

The initiative will support the FRC in assessing what is proportionate in the oversight of less complex PIE entities. Participating firms in the programme, subject to their commitment and progress, can expect a reduction in certain formal inspection, supervision and registration requirements during 2025/26 and 2026/27.

This initiative recognises that smaller firms face resource and capacity constraints in building their presence in the PIE market. The FRC says a more proportionate supervisory approach will enhance audit quality and reflect the unique needs of smaller firms.

FRC CEO Richard Moriarty says: "I am keen for the FRC to support the growth of those firms that want to establish a greater presence in the PIE audit market who commit to delivering high quality and safeguarding the broader public interest. Small firms have told us they need time and space to build capability in the PIE market . 

“Our new Scalebox Programme intends to meet this challenge head on and help look closely at what proportionate oversight of smaller PIE audits looks like. We will offer participating firms a more forbearing formal regulatory oversight and focus our resources instead on supporting their improvement.”