April date set for SME audit plans

Plans that could see the introduction of an alternative assurance system to the audit for small companies are expected to be put forward for approval next month.

An 11 April meeting at the Financial Reporting Council will see proposals to review the financial information requirements of small businesses up for endorsement.

If given the go-ahead, a thorough investigation into the needs of the various SME stakeholders, such as moneylenders and tax authorities, will be undertaken by the Professional Oversight Board for Accountancy, headed by Sir John Bourn.

The body is likely to call on external advisers to help with the research, while previously undertaken studies on the subject could also be used, according to POBA director Paul George.

‘This is much broader than an alternative assurance scheme,’ he said. ‘It will be looking at the issues SMEs face in terms of the supply and demand of financial information.’

If assent is given, George hopes that the board will be able to report on some of these issues by the end of the year, after which the relevant professional bodies would take forward any recommendations.

The prospect of an alternative audit system was thrust into the spotlight again after the Auditing Practices Board, another division of the FRC, published its ethical standards for auditors. Despite some concessions, many within the industry felt that the new rules placed unnecessary burdens on small companies, which could result in many having to employ two separate accounting firms to avoid conflicts of interest.

This raised the question of whether the audit is the right assurance vehicle for smaller companies, one which POBA will be tasked with answering. But any changes that take place as a result of the review will probably apply only to companies already under the audit threshold of £5.6m turnover.

It is not the first time such a debate has taken place. In 2001, the APB carried out a project and trials looking at whether an independent professional review, or IPR, would sufficiently replace an audit for small companies. The debate divided the profession like few other issues before.

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