The UK’s consultation on corporate governance and audit reform, announced in March, asserts that large private enterprises—and their directors—should be held to the same reporting standards as listed companies. The Big Four and even, to some degree, international regulators such as the IASB have criticised the government’s proposals, designed to “restore trust,” for potentially adding significantly to reporting requirements on the newly defined “public interest entities” (PIEs). The government proposes to expand the definition to include the largest 1,500 or so private companies in the UK.

As proposed, directors of these companies (including nonexecutive directors appointed by private equity investors) would need to carry out a review, disclose details of the procedures, and make a statement as to whether they consider the procedures to have operated effectively. Audit committees would decide whether the statement should be subject to external analysis.

Conflicts may abound: Proposed restrictions on nonaudit services that an accounting firm can provide to large private equity assets may cause some problems. Where business valuation services are required, the big audit firms may need to outsource more frequently than they currently do for these clients.