The GAPP between the JMU and its critics is small

The Joint Monitoring Unit’s modus operandi have been the subject of bitter debate since its inception following the Financial Services Act in 1986. Although significant improvements were made nearly three years ago, the bitterness has not abated, even if some believe it has been felt by fewer people.

That bitterness has flared up again recently. Thanks to our coverage of a major survey by the Small Practitioners Association, small practitioners and the JMU have once again been at very public loggerheads in the past few weeks (Accountancy Age, 26 September and 3 October). But now, happily, one of the major bones of contention may soon be removed from their scrap.

In a few weeks’ time, the Accounting Standards Board will issue for discussion a financial reporting exposure draft on a possible Financial Reporting Standard for Smaller Entities. If the feedback is consistent with that already received from Ken Wild’s long-standing working party, the new standard could be in operation by the middle of next year.

The significance of this development for relations between small firms and the JMU cannot be overestimated. If the full and heavy hand of audit requirement is lifted from companies turning over less than #2.8m, the smaller firms now auditing these hundreds of thousands of companies will not need to submit themselves to the full regime of JMU monitoring.

Final details of the exemptions would need to be worked through carefully.

And it may be there is a gradation of exemptions, with perhaps a limited signing off required for #1m-plus turnover operations. The point is, however, that, in future, firms will be free to do what they should be best at – offering their clients business and tax advice – without fear that a visiting inspector will tick a box that could eventually lead to the loss of their licence.

Joy would be unconfined in the small business world and the accountants who serve them. But none would be happier than the JMU itself, which has always perceived the absurdity of the extent of reporting requirements for small companies and their auditors. Its job will be made far less onerous, and it will be able to focus its energies and resources on the large and medium firms, where the real public interest issues lie. How comfortable these firms may feel at that prospect is open to conjecture, but such monitoring is part of the ongoing price the profession continues to pay for the laxity of the late 1980s.

Not that life for the smaller practitioners will be altogether easier once the FRSSE is in force. Yes, the burden of audit/JMU compliance will be eased for many. But they must live on their wits as business advisers – how many are truly up to this? Further, life will become more competitive at this end of the market as those firms deprived of audit fees seek fresh income streams. And the perception may take hold of a two-tier profession – with small firms perceived as accountancy’s poor relations. This is palpably not the case. Many small firms are capable of delivering superior services to that of their bigger brethren. However, the perception that this unregulated sector is the fag end of the profession could all too easily stick.

These are not easy challenges for the smaller firms to face. But rising to meet them is surely preferable to entanglement with their old adversaries at the JMU.