John Selwood - Firms face fundamental change.
‘Small accountancy firms face costly blow from move to raise threshold to £4m turnover,’ ran the Financial Times’ coverage on proposed hikes in audit exemption levels. ‘The proposal will alarm small accountancy firms, which will face a sharp fall in auditing fees’, it went on.
So, should small firms be alarmed?
Over recent years, the accountancy press has been full of horror stories on the prospect of an increased audit threshold and the demise of compliance work. Volumes have been written on the possible strategies that small firms should adopt to survive the change.
Reeves & Neylan began diversifying several years ago and is now also focused on IT consultancy, profit improvement, outsourced accounting, specialist VAT and forensic accounting. We have not allowed news of an impending increase in the audit threshold to impact on our business.
And we are not an exception. While public perception is that the accountancy profession is bathed in self-interest and fears the death of the statutory small company audit, in reality, many firms anticipated the change and have been planning for this increase in threshold for years.
Some small firms may not be prepared for the change, but even then the impact on their business could be small. Most small companies do not use auditors just for audits. The auditor also deals with the company’s corporation tax, preparation of financial statements, company secretarial matters and the director’s personal tax. So fee income should not be significantly affected. While clients may initially see their fees go down, a good firm will soon make them realise that statutory audit work forms only a small part of the total fee.
What is potentially more worrying is that this change is only the thin end of the wedge. More fundamental changes in terms of statutory simplifications and technological advances are on the way.
It is possible that the tax system could be simplified, (really simplified, not ‘self-assessment’ simplified), company reporting requirements could be reduced and e-commerce may revolutionise the way that we interact with our clients.
We are ready for the changes ahead, are you?
John Selwood is a partner with Reeves & Neylan.