Alternative small company audit ruled out by FRC

An in depth review of the auditing needs of small companies has found the
introduction of an alternative assurance scheme is unnecessary, despite claims
from accountants that regulation is sending audit costs for SMEs rocketing.

A report from the Financial Reporting Council’s professional oversight board
has recommended greater clarity for company directors on the services provided
by and professional obligations of accountants.

But detailed information should also be made available on accounting options,
such as when an audit should be undertaken or if abbreviated accounts should be
filed, according to the board.

‘What we were focusing on was what the accountant had actually done rather
than an alternative assurance service,’ said Paul George, director at the
Professional Oversight Board for Accountancy. ‘When you need an audit, you
should have a full scope audit,’ he said.

George also said it was a ‘misconception’ that banks required audited
accounts for most small companies when making lending decisions, except where
very large amounts of money were involved. Information gained from the activity
of a company’s current account would suffice in most cases, he suggested.

The report showed that, while 880,000 small companies were using the audit
exemption, another 180,000 were still undertaking a voluntary audit.

For those that fall under the £5.6m threshold, but still choose to continue
with the audit, the costs associated with it are set to rise rapidly, however,
as new rules and regulations kick in.

Michael Sheppard, partner at accounting firm Wylie & Bisset, said the
introduction of international auditing standards and rules on ethics were likely
to see audit costs rise 20%. This could put more companies off undertaking the
voluntary audit.

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