Cable’s flawed thinking

SHOULD VINCE CABLE'S recent statement on audit for small and medium sized businesses be considered a definitive statement of what should happen in the future?

On the face of it Friday’s news that the government would scrap filing accounts for micro businesses and raising the audit threshold for small and medium sized businesses looks good. Cutting red tape is a perennial policy target for governments (though little is often achieved) and such efforts are to be welcomed.

Yet there was something in the statement that would naturally bring the observant reader to a jarring halt. The business secretary would be entirely reliant on EU reform to achieve his policy objectives – a factor that looks largely out of his control. Indeed, the policy statement was more about what kind of lobbying would be undertaken. We’re a long way from a conclusion on these issues.

But there was something else to consider – the role that such audits currently play in business. Cable’s policy statement appeared to be built on the assumption that audit, especially for SMEs, is little more than a pointless box-ticking exercise to meet certain compliance requirements.

As people have rushed to tell Accountancy Age, that is not the case. As much as business may be galled by the need for an audit, the report plays a significant role in accessing credit and demonstrating a business’s financial viability.

Getting rid of the audit would leave a gap that would need to be filled somehow, and someone would have to pay for it. In other words, it is flawed thinking to assert that removing an audit or reducing the requirements to file accounts would remove a cost entirely. It might remove a statutory demand but not the demands of potential business partners, suppliers, lenders and insurers. The business nexus is more complicated that Cable’s policy statement might allow.