ACCA urges FRC to ensure proportionate SME audit requirements

The Association of Chartered Certified Accountants (ACCA) has called for a more balanced approach to audit regulations for small and medium-sized enterprises (SMEs), urging the UK’s Financial Reporting Council (FRC) to align audit standards with international best practices.

The call follows the FRC’s launch of a market study into the challenges SMEs face when accessing audit services and the associated reporting burdens.

In its response to the FRC’s market study on SME audit and reporting, ACCA advocated for a shift in focus from the size of an entity to its complexity when determining audit requirements.

The accounting body suggested that this approach would allow more flexibility and better cater to the varied nature of SMEs across the UK, where businesses may be large in size yet not necessarily complex in their operations.

Focus on Complexity, Not Size

ACCA’s Director of Policy and Insights, Mike Suffield, emphasized that global consistency in corporate reporting and audit standards should be a priority, highlighting the importance of aligning the FRC’s approach with the International Auditing and Assurance Standards Board’s (IAASB) framework for audits of less complex entities (LCE).

In a statement, Suffield said: “We believe it would be valuable and in the public interest for the FRC to set out clearly why it has not adopted the IAASB’s International Standard on Auditing for LCEs. A transparent approach will benefit stakeholders as they continue to engage in the process.”

The FRC’s market study aims to examine the accessibility, cost, and practical application of audits for SMEs, which are a vital part of the UK economy.

SMEs account for over 99% of all private sector businesses in the UK, contributing 52% of total UK business turnover. However, despite their importance, SMEs often face challenges in securing affordable and efficient audit services.

Key Areas for Improvement

Glenn Collins, Head of Technical and Strategic Engagement at ACCA, stressed the importance of simplifying audit requirements for SMEs without compromising quality.

“The focus of audit standards should be on complexity, not size,” Collins remarked. He added that this approach would benefit a wider range of firms and practitioners by addressing scalability issues, particularly in sectors where businesses are growing but not yet highly complex.

The ACCA’s submission suggests that the FRC’s efforts should focus on improving communication with stakeholders, ensuring that businesses understand the value of audits while also addressing concerns about their cost.

The response further called for measures to better explain the purpose of SME audits to reduce the expectation gap.

The FRC’s Role in SME Audits

The FRC’s market study, launched in February 2025, aims to identify key challenges SMEs face in relation to audit and reporting, with particular focus on issues like the burden of regulatory compliance and the accessibility of audit services.

The study will look into the driving forces behind SMEs’ decisions to procure audit services, and it is expected to contribute to the FRC’s broader campaign to make audits more accessible and less burdensome for SMEs.

Miranda Craig, Director of Strategy and Change at the FRC, highlighted the importance of the initiative, stating: “SMEs are at the heart of job creation and innovation in our economy.

The FRC is committed to supporting their aspirations to grow and scale by examining how the audit market is working for these businesses.”