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06 Oct 2011
AUDIT EXEMPTIONS could expand to include larger SMEs, a move government claims might save more than £600m a year in accountancy and administration costs.
Lifting the threshold for statutory audit could benefit as many as 100,000 companies, according to a consultation by the Department for Business, Innovation and Skills.
Further reading
Current UK rules state SMEs must have both a maximum balance sheet total of £3.26m and less than £6.5m turnover.
European Union law classifies audit-exempt companies as those that meet at just one of these two criteria and employ 50 or fewer staff, and BIS wants to soften UK law in line with this less stringent requirement.
Corporate governance minister Ed Davey (pictured) said: "The proposals we've published today are aimed at removing EU gold plating and freeing up enterprise, which ultimately benefits the whole UK economy and will help put us on the path to long-term, sustainable growth."
Acknowledging audit is "very valuable" for many companies, he also proposed exempting most subsidiary companies from audit, provided the parent company is able to guarantee their debts.
Henry Irving, head of audit and assurance at the ICAEW, underlined the importance of audit for oversight and governance, saying: "Many SMEs and subsidiaries will continue to choose to have an audit, even though they may qualify for exemption, because it provides confidence and peace of mind."
Many critics have warned traders and creditors will not deal with companies that do not have an audit, and Irving echoed this concern, saying: "It can be important to have audited accounts when pitching for contracts or seeking finance."
However, assistant director at the British Bankers' Association Brian Capon told Accountancy Age banks generally lend on the basis on working accounts, which are sufficient to show companies' financial status and viability as a borrower.
"Banks these days hold much more information on companies than they did several years ago, and this is generally enough to make a judgement," he said.
Stakeholders have until 29 December to comment on the BIS consultation.
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Visitor comments Add your comment
Are the government going to say MOT's aren't needed?
As businesses grow they become more complex and a more structured approach to financial management and control is needed. An audit is arguably the equivalent of an MOT check on the accounts & accounting system. The discipline of an annual check makes companies get their house in order.
Not having this check is in my view a false economy for larger SMEs, as failures in control can be MUCH more costly than an audit fee!!
SMEs are seen by funders as being higher risk than their larger counterparts. One way of reducing this perception of risk is to improve governance, not weaken it!
Posted by: David Lewis, 07 Oct 2011 | 08:47
Another battering for the small qualified accountancy firm
As a member of the ICAEW, I really do wonder way I bothered earning a pittance for so long (and not a great deal more today, compared to most professionals), and went through the pain of the exams. Everyone in the UK is an accountant, if they wish to describe themselves as such. As a Chartered Accountant then, what work am I qualified to do that others can not? Very little, and ever decreasing. Yet the 'profession' is proud that so many youngsters join it. Personally, I would prefer to be the only accountant on the planet. Surely many other small practitioners feel like I do. I am getting ever closer to putting my ACA certificate in the bin.... I won't then be burdened with all the regs, rules, cost etc, and will be back on an even playing field with all of the other unqualifieds.
Posted by: Wishiwerenot an accountant, 07 Oct 2011 | 15:47
Most SMEs are ALREADY exempt from audits
I wsh I knew whether Government Ministers and their advisers know this and are trying to spin the story or are ignorant of how irrelevant the change would be.
Businesses with a turnover BELOW £6.5m are ALREADY exempt from audits. Doh!
Posted by: Mark Lee, 07 Oct 2011 | 16:22
But it's their responsibility, not the government's
"SMEs are seen by funders as being higher risk than their larger counterparts. One way of reducing this perception of risk is to improve governance, not weaken it!"
Excuse me but what the hell are their investors doing then? They are the clients of audits. If there are concerns about a company's books, its shareholders and potential investors should take the personal responsibility of having it audited. If it genuinely improves access to credit (assuming even more gearing in this environment is somehow sensible), then SMEs have every incentive to be thoroughly audited. Yet it should be up to them and their clients whether to do so or not, with all the attendant drawbacks and benefits.
Posted by: Anthony, 11 Oct 2011 | 18:46
Not all SMEs are ALREADY exempt
In reply to Mark Lee's post. There are many small investment companies with turnover less than £6.5m that require audit, as their balance sheet total exceeds £3.2m. So I think every effort to align with Europe is welcome.
Posted by: SME Owner, 12 Oct 2011 | 22:13