Could a charity be a PIE? The Charity Commission view is shared

In a move to restore trust in audit and corporate governance and strengthen frameworks, the government issued a consultation in March 2021 on how companies report their governance and finances, how reports should be audited, changing audit markets and potential changes in regulators. 

These recommendations would apply to all Public Interest Entities (PIEs).

The government proposed two possible tests to extend the definition, and those affected will have to create and implement new policies and procedures, including creating new systems to enable compliance with the new requirements:

1. More than 2,000 employees: A turnover of more than £200mn and a balance sheet of more than £2bn
2. Over 500 employees: A turnover of more than £500mn

As part of the consultation, the government proposed to expand the definition of a PIE to include large charities, universities, and housing associations. 

For charities it was proposed that the PIE regime would apply to those with income over £100mn. This would result in more onerous governance and financial reporting requirements for these charities.

The Charity Commission published their response to this consultation (27 July 2021) with the view that charities should not be included within the definition of PIEs and the associated corporate reforms.

The basis for this decision is:

• Existing frameworks exist, specifically for the charitable sector
• There was an absence of comparable failures in charities to suggest that risk/problems are prominent to justify such extensive additional regulatory burdens and financial cost to the sector
• They identified synergies with existing commission regulation, guidance and policies in place for the charitable sector, which cover much of the proposed reforms.

The Charity Commission has therefore invited the government to work with it to establish the extent to which existing charity mechanisms could be enhanced, in efforts to improve corporate governance and oversight.

If you would like any advice in connection with your corporate governance or financial oversight please contact Sally Timmins, National Leader of Governance.