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04 Mar 2011
THE BUSINESS SECRETARY has pledged to remove the need for accounts filing and audits for tens of thousands of small and medium-sized businesses.
Vince Cable said under the proposals, which the government is consulting on, small companies would no longer need an audit, bringing the UK in line with EU rules. He said this will affect 42,000 businesses.
Further reading
The government will push for exemptions for even smaller businesses to submit specific accounts for Companies House in addition to those for tax purposes, which the business department predicts could save £400m.
Around 32,000 medium-sized businesses could be freed from requiring an independent audit.
Parent companies might not have to publish accounts for their dormant subsidiaries, he added.
"It's important that we free small firms up so they can grow and drive the economy. The changes I have announced today mean that small firms will be able to concentrate on growing and taking on more people instead of paperwork," said Cable.
Initial reaction from the major institutes was mixed.
Paul Provan, ICAS's assistant director of business policy, told Accountancy Age that the removal of audit from medium-sized businesses was "not in the public interest". He said that there was no way of seeing the impact on audit firms without seeing the detail of the consultation.
John Davies, head of technical at the ACCA, told AA that "clearly a great many firms would be doing fewer audits" but added that the changes are still at the consultation stage.
He added that this was not a major new announcement but a restatement of the department's principles, such as the support for the move within the EU to exempt micro companies from all accounting rules and the idea of extending audit exemption to companies of up to £25m.
However, he added it was "disappointing that there are several references to several auditing and accounting rules being synonymous with red tape". This oversimplified the situation, he said.
Clive Lewis, head of SME issues at the ICAEW, told AA that the institute was "broadly supportive" of measures to ease the regulatory burdens on business.
He added that this should not have much of an effect on auditing firms as the audit threshold currently stands at £6.5m turnover. "You are talking about fairly substantial businesses. So raising the threshold further would involve larger businesses with complex transactions so many will continue to voluntary have it," he said.
Some firms will decide to use other services provided by the institute's members, such as assurance, he added.
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Briefings
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Visitor comments Add your comment
But out here in the real world
Whenever a business wants to borrow money, or a sole trader wants to get a mortgage, the banks still ask for "audited accounts" and they are not likely to ease up on that just because Vince tells them so.
Posted by: Eleanor, 04 Mar 2011 | 18:14
Audit deregulation
We have this absurd situation whereby the mad hatters tea party which is the standard setters impose increasingly onerous audit regulation whilst government reacts by exempting ever more companies from it. The end result is that 20 years on from requiring all companies to have at least the light touch 'example 8' audit, overregulation has resulted in virtually no companies needing any external scrutiny at all. Soon only listed parent companies and banks will need an audit. Why not abolish it altogether and have done with it?
Posted by: Jon Griffey, 04 Mar 2011 | 19:58
Cost of limited liability
Its a back ward step to let those sheltering behind limited liability avoid public scrutiny/information.
How can we small enterprises credit check companies if there is no need to file?
The red tape is all down to HR issues and employment law not the annual audit.
Complicated VAT rules.
Tax law by the bucket load
This sounds like our politicians looking for easy meat again.
Posted by: Peter Denton, 07 Mar 2011 | 13:15
Trade credit?
The idea of reducing red tape is highly commendable, but reducing the need to publish accounts and/or have them audited may not be in everyone's best interests. What about the small company that needs to open a trade account with its suppliers? If there is no financial information in the public domain, how is any supplier to assess whether it is prudent for them to advance a credit account. Without it, the small business will operate on a cash on delivery basis and that will likely hinder its growth potential. If you want to limit your personal liability and operate through a limited company, part of the benefit of limited liability is the task of completing a set of accounts. The option is already in place not to prepare and publish audited accounts - simply operate as a sole trader or partnership. About time Vince Cable came up with practical help and stopped keep repeating the same old stories.
Posted by: Harry, 07 Mar 2011 | 14:28
comment
Vince Cable
Who’s who entry in a few months:
“He went from promising and masterful beginnings in Government to utter ineptitude, asininity and irrelevance in a few short months.”
Posted by: roger, 07 Mar 2011 | 16:49
Has it got no clothes?
Audit has a problem. Like the Emperor perhaps it should recognise it's nakedness. First there was the progressive relaxation of audit requirements for "small companies" - as in less than £6.5 milliom turnover ones - and did the economic world stop for them? No. Then there was Huntingdon Life Sciences - the medical research company. I think the records show that this key part of a key UK industry could not get anyone to audit it - because the auditor had to stand up and be counted - stand up to animal rights activists and it wouldn't - and I think the records show that the audit profession cut and ran - and did the ecopmomic world end for HLS? No. And then we had the recession and Northern Rock and RBS - and how did the auditors perform? Northern Rock - well with its 125% loan to value and borrow overnight and lend for 25 years business model - well that got a clean bill of audit health - well it would wouldn't it there is nothing wrong with that - is there - and as for RBS - THE PEOPLES BANK - the auditors signed off the really viable rights issue - the one a couple of months before it ran out of money - and since then they have signed off the 2008 and 2009 accounts which have all the premium on the Government shares going straight to distributable reserves instead of to the share premium account and out of that share premium a dividend is paid - it's called a "cash box scheme" - well that's "true and fair" - isn't it. As I said at the start perhaps "the the Emperor has got no clothes" and perhaps this announcement shows that Government recognises this. Audit has a problem.
Posted by: chris, 08 Mar 2011 | 09:04
audit regulation & the threshold
this has been a joke since margeret thatcher introfuced companies act 1989....this is more cowtowing to a tory agenda by the libdems using a pro-european label to make it popular with the DEMS in the CONDEM coalltion........
the profession is now an "industry"
forget about the regulators what good did they do.... since CA1989
Audit is the only internationally transferrable accountancy skill and it is part of the training of fewer & fewer accountants as a result of excessive regulation.....
the exit of CIMA from CCAB shows how small minded and defensive our regulators have become.........
watch this space:
Posted by: david, 08 Mar 2011 | 13:17
Audit regulations too burdensome
It is an excellent idea to allow small companies to have some degree of flexibility to grow without the burden of being too highly regulated. Too much regulations in the industry can stifle growth. A good Accountant report can meet the needs of bankers and suppliers.
Posted by: Sarah Pariag, 09 Mar 2011 | 11:49
Madness
This old chestnut? It just demonstrates that the business secretary is absolutely bereft of ideas to get the economy going. Removing independent scrutiny will weaken SME's relationships with their professional advisors and make them less inclined to take the advice they need to grow their businesses and the economy, let alone leaving the doors wide open to incompetent or fraudulent reporting.
Posted by: Marwnadiaeth, 09 Mar 2011 | 13:15
Back to enterprise culture
For a mom-and-pop owner-drivers of Ltd Co, there is hardly any value in paying for the annual statutory audit, both in audit fee monies and the time and anguish that the annual ritual entails. Why? Because mom-and-pop do not need to be told by an expensive, jargonistic auditor how many times they drove their vehicle over the speed limit, how they screeched their brakes, how they parked in awkward places as they did it all and lived through it all and know about it so well. To prosper in their enterprise, they should instead spend their capital on better branding, marketing, innovation, design, extra pairs of hands and management consultancy. Lenders lend only when they secure it on a combination of real estate and unconditional personal guarantees. Creditors give credit because they build in bad debt risk in their pricing so that if one in so many fails to pay, well the somewhat inflated price has brought in the margin to tolerate the predicted level of bad debt. Only politicians of Vince’s calibre extend themselves to remove such fetters on the nation of shopkeepers. And Vince, please try to dismantle the much loathed late-filing penalty culture of Companies House because those financial statements only fuel the data selling agencies.
Posted by: Jaffer Manek, 09 May 2011 | 19:52