ICAEW has strongly opposed the five-fold increase in the threshold, which is likely to mean less audit work for accountancy firms serving smaller companies.
The audit threshold for small companies will be raised from £1m to £5.6m.
On DTI calculations this will exempt a further 69,000 companies from the requirement to have their accounts audited. Business leaders have widely welcomed the decision, which the government claimed will ‘cut red tape’.
While many in the accountancy profession worry about losing vital audit work, the Federation of Small Businesses said that freeing up cash tied up in audit work could allow accountancy firms to provide other types of services to smaller firms.
It claims a rigorous audit is only essential for bigger companies that need to secure the confidence of sceptical shareholders in the wake of Enron-style accounting scandals.
Stephen Alambritis, head of parliamentary affairs for the Federation of Small Businesses, said: ‘The money saved will be better spent on more worthwhile activities, such as financial management and training, rather than an expensive audit.’
The ICAEW, however, claimed that the case had not been made for a five-fold threshold increase and standards could suffer as a result. David Illingworth, ICAEW president, said: ‘We remain concerned that this decision is being made without sufficient evidence to demonstrate the benefits. We cautioned against an increase of the magnitude proposed. We believe that it could have a long-term impact on the business environment, including standards of business behaviour, the quality of financial information available to stakeholders and levels of economic crime.’
The DTI estimates that the decision will save companies at least £94m a year. It presented the move as a dramatic cut in red tape, which will mean most small companies will no longer be required to have accounts audited.
Patricia Hewitt, trade and industry secretary, said: ‘SMEs are an essential part of our economy and this will help them to be competitive and maintain the UK’s pole position.’
IMPACT OF THE NEW AUDIT THRESHOLD
– Audit threshold for small and medium-sized businesses to be raised from £1m to £5.6m
– 69,000 more companies will be exempted from the audit requirement
– The measure is expected to save companies at least £94m a year
– Changes effective from January 2004.
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