Accountancy insolvencies expose flaw in government audit policy

THE GOVERNMENT needs to step back from implementing a further increase in audit thresholds or risk pushing more accountancy firms out of business.

Figures out today (firms entering insolvency rockets 41%) reveal that accountancy firms have been going bust at a rate of almost one every three days. True, the reasons are varied and include the effects of the recession, depressed fees and a collapse in M&A work.

Nevertheless, government policy has played its part with last year’s increase in the audit threshold so that 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.

If, as expected, the proportion of audit exempt companies is increased next year to encompass 99% of UK businesses, the number of firms going out of business is bound to increase.

The idea is that government is cutting red tape by pulling companies out of audit, but compared to many other regulations, audit is not an overly costly, cumbersome or time consuming burden.

The impact on firms could be dire.

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