BIS warned on consequences of raising audit thresholds

THE QUALITY of company accounts could deteriorate over the next ten years if the range of businesses that are exempt from having an audit is increased, experts have warned.

As part of changes to the EU’s Accounting Directive, voted through European Parliament earlier this year, member states can significantly increase the size of businesses that do not require audited financial statements.

Speaking at an ICAEW event in the City last week, Malcolm Bacchus, an institute council member, said accounts could “look worse than they are now” if audit exemption thresholds are further increased to include companies with a turnover below €12m (£10.3m) and a balance sheet below €6m.

“There’s a whole tranche of businesses I worry about,” Bacchus said, adding that the Department for Business Innovation and Skills (BIS) would need to monitor the quality of unaudited accouts filed at Companies House as any deterioation would happen over a long period.

Last year, BIS aligned mandatory audit thresholds with range of businesses that can be defined as small, an thus exempt from an audit, under EU rules.

Companies are exempt from requiring an audit if they meet two out of three qualifying criteria – a balance sheet of less than £3.26m, turnover below £6.5m and fewer than 50 employees. However, a new paragraph introduced into the EU’s Accounting Directive earlier this year could effectively double the size company able to obtain an exemption.

EU member states have until 2015 to implement the directive, and BIS is expected to consult on any changes next year. However, accountants and capital providers are concerned about the implications such changes would have.

Stephen Pegge, director of group external relations at Lloyds Banking Group, expressed concerns that presenting audit “as a burden” and something that is “required by law other than something of value” was not “terribly helpful”.