APB says audit-lite will be tested again
The Auditing Practices Board has given the strongest indication yet that it is to reopen the explosive debate on offering smaller companies a cheaper form of assurance for their financial accounts.
Link: Institute ducks ethics showdown
Introducing five new ethical standards to ensure auditors’ independence last week, APB chairman Richard Fleck said the board is to re-examine the needs of small companies and the users of their financial accounts to reduce the burden on them.
Ministers this year followed up on their promise to reduce red tape for the UK’s 1.3 million ‘small’ companies by excluding those with a turnover of or below £5.6m – the European limit – from the annual statutory audit.
But the initiative hasn’t had the desired effect, as many companies continue to have their accounts audited to ensure tight controls and transparency for existing and potential investors and banks.
The APB said it is ‘conscious of the inexorable increase in the complexity of accounting, auditing and ethical standards’ and the ‘burden’ these place on small companies and their auditors. The board said it would begin a project ‘with a view to introducing a new form of assurance’.
In 2001, the APB carried out a project and trials looking at whether an independent professional review, or IPR, would sufficiently replace an audit for small companies. The debate divided the profession like few other issues before.
The findings showed that although an IPR was able to detect misstatements, an audit was more effective in doing so. The issue of cost savings was also widely disputed.