Proposals to remove the audit requirements for an estimated 3,200 financial
advisers regulated by the Financial Services Authority have been warmly received
by the accounting profession, relieved that they have had no significant impact
on fee income for practitioners.
Despite previous concerns that falling numbers of potential audit clients
could damage the income of smaller accounting firms, the profession has accepted
the FSA’s proposals as a ‘welcome deregulatory approach’.
The proposal, which the FSA aims to implement with cooperation from the DTI
‘as soon as possible’, could save the 3,200 financial advisers and 1,490
appointed representatives £12.9m a year.
James Barbour, director of accounting and auditing at ICAS, said the move was
‘not a significant loss’ to auditors, and the savings made by FSA-regulated
firms affected would be less than suggested.
‘Lots of firms are already out of audit, but most are doing tax accounts
preparation for their clients, so I don’t think audit is a significant loss.
It’s up to the FSA to do its own analysis of its risk management regime and we
believe it’s a welcome deregulatory approach,’ said Barbour.
Barbour expected only mid-tier and larger firms would provide audit work for
FSA-regulated firms, and smaller accounting practices would not lose out.
In September 2005, the DTI amended the Companies Act to exempt small FSA
authorised firms and advisers from an audit that only undertook mortgage and
general insurance business.
‘We are challenging regulations whose costs outweigh the benefits they bring
and our work with the DTI to extend the audit exemption will bring firms that
are limited companies in line with partnerships and sole traders,’ said Stephen
Bland, director of small firms at the FSA.
The raising of the audit threshold from £1m turnover to £5.6m saw as many as
90,000 potential clients drop below the threshold, with an estimated £360m lost
to the accounting profession. But representatives have claimed that the money
has been made up in the provision of other services.
Peter Mitchell, chairman of the Society of Professional Accountants, has
claimed that audit had largely been a ‘loss-leader’ for smaller firms.
But he urged FSA-regulated businesses, such as small insurance brokers, to
use an accountant to undertake reviews of their client activity, as best