Banks will continue to demand audits

Some of the UK’s biggest banks will continue to demand audited accounts from small businesses seeking finance, despite the hike in the audit threshold to £1m and proposals to raise it further to £4.8m, it emerged this week.

Their stance could hinder government attempts to develop a ‘lighter-weight’ replacement to the audit – the independent professional review – in reforms designed to reduce costs and red tape for smaller companies.

The banks’ comments came after the plans were dealt a blow last week as the ICAEW’s ruling council, in a surprise U-turn, withdrew its support for the IPR.

Banks initially welcomed proposals in the Company Law Review for IPRs because it meant SMEs retained accountants as business advisers even if they were exempt from an audit.

But a spokesman for Lloyds TSB told Accountancy Age this week: ‘We always said we had to reserve the right to an audit. If we’re talking about companies with a turnover of £2m, we would probably require an audit.’

The spokesman added: ‘The ICAEW’s withdrawal undermines the proposal. But, this is by no means a disaster. It wasn’t something we envisaged relying on.’

A Barclays spokesman said: ‘Our decision would be based on knowledge of the customer. If they are existing customers we’ll understand their business. But, with new ones it’ll be different.’

But both banks said they usually looked at cashflows and other sources of data when considering extra financing for SMEs.

Trade secretary Stephen Byers has said he will consider raising the audit threshold to £4.8m – the European maximum. Speculation is building that this could be announced in the Budget.

The proposals have sparked debate among accountants. Some small practitioners fear they will lose business, but others say the reduction in red tape will help provide a better service.

Links

ICAEW council revokes support for IPR