The Minister for the Arts John O'Donoghue is now believed to be against making his department responsible for direct funding to the Abbey Theatre rather than through the Arts Council.
In the immediate aftermath of the recent discovery that losses for 2004 turned out to be €1.85 million, twice what had been forecast, the Minister suggested that such a change in funding arrangements for the theatre might be necessary in the future in order to more closely monitor the state of its finances.
The Arts Council was firmly against the idea that it might be bypassed and lose its largest client. It is understood the Minister has been considering the council's view, put forward at a meeting during the week, that this would not be in the best interests of the theatre, and has been hearing opinions from a range of people in theatre and the arts.
Sources indicate Mr O'Donoghue has been receptive to the concern that direct funding in the case of the Abbey Theatre could be seen as the government of the day having too much control over the National Theatre. While he is now inclined towards leaving the Arts Council with its funding role, he is likely to want appropriate representation for his department within the new Abbey structures.
Both the Minister and the Arts Council are awaiting the outcome of an independent inquiry into the "hidden losses" of €900,000 that resulted in a doubling of the Abbey's forecasted deficit for last year.
It is understood that at a meeting on Thursday the Abbey board appointed KPMG as the independent financial consultants to undertake the review, which will begin on Monday. A breakdown in internal accounting processes was blamed for the late discovery of the additional losses, which were initially put down to the centenary year touring programme.
Several other national cultural institutions receive their annual funding directly from the Department of the Arts, including the National Gallery, the National Museum and the National Concert Hall.
The Minister provided an extra €2 million in emergency State subvention for the Abbey last December to see it through a process of change.
Mr O'Donoghue has described governance structures at the Abbey as "Victorian".