PracticeAudit‘Unaudited accounts risk credit rating and wider economy’ – Graydon

‘Unaudited accounts risk credit rating and wider economy’ – Graydon

Credit reference agency Graydon warns companies dropping audits could affect their credit ratings and, in turn, access to finance

BUSINESSES opting out of undertaking audits once they fall below the £10.2m statutory threshold are risking their credit rating, ratings agency Graydon has told Accountancy Age.

Companies abandoning their audits after falling below the threshold risk restricting the credit available to them, and by extension their access to finance and suppliers, Graydon’s UK head of operations Colin Sanders said.

“It’s quite worrying, and I believe it’ll ultimately lead to restricting amount of credit that’s applied to companies,” Sanders said. “We are going to have to be more cautionary in respect of the amount of credit we give as a result of the minimal information we’ve got. It’s even holding back the economy because it’ll restrict the amount of growth companies will be able to undertake.

“Audits provide verification more than anything else,” he went on. “An independent body has audited these accounts and confirmed they show a true reflection of the figures that have been reported to them. Unaudited, I’m not saying they’d completely differ or people would be less than truthful with their trading figures, but it is open to possible abuse.”

Shelley Stock Hutter partner Richard Churchill echoed Sanders’ assessment, noting “there’s a risk if you go down the unaudited route”.

“Even if you’re 100% accurate in what you’ve done, maybe that will open [a company] up for greater scrutiny from HMRC – you’ll go into a category of companies with a higher risk factor than the others. How important is the credit rating to you as a business? For some it’s vital – they have high levels of finance with various parties – if they’re concerned moving from a good rating to a medium one would have an adverse effect on the business, they ought to think long and hard before dispensing with it.”

Churchill also noted that predicting the impact on any given agency’s assessment of a business’s creditworthiness was unpredictable as they do not appear to use the same parameters.

He told Accountancy Age: “Credit ratings agencies don’t disclose how they derive their results, and as such we don’t know exactly what weighting they give to the fact a set of accounts are audited or not audited. My gut says they must place some credence on accounts that are audited.”

In January, the government pressed ahead with raising the audit exemption threshold to its maximum level.

As a result, companies require at least £10.2m in turnover, a balance sheet total of up to £5.1m and up to 50 employees to qualify for a statutory audit.

Below those levels, companies may opt out of undertaking that audit process – a decision advisers have told Accountancy Age could lead to laxer reporting standards, tax issues and problems in providing assurance for banks and investors.

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