PracticeAudit‘Audit hike poses standards threat’

'Audit hike poses standards threat'

The government's move to raise the audit exemption threshold for small companies has placed accountancy at loggerheads with the wider business community.

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.

Related Articles

Is predictive analytics the end of the annual audit?

Audit Is predictive analytics the end of the annual audit?

3d Martin Herron, MHA MacIntyre Hudson
Auditors ‘in the dock’ over Carillion as report calls for Big Four break-up

Audit Auditors ‘in the dock’ over Carillion as report calls for Big Four break-up

1w Emma Smith, Managing Editor
PCAOB sanctions former Deloitte Turkey CEOs over altered documents

Audit PCAOB sanctions former Deloitte Turkey CEOs over altered documents

2w Alia Shoaib, Reporter
KPMG South Africa to review past audit work amid fresh scandal

Audit KPMG South Africa to review past audit work amid fresh scandal

1m Alia Shoaib, Reporter
FRC introduces £10m sanctions for Big Four firms

Audit FRC introduces £10m sanctions for Big Four firms

1m Alia Shoaib, Reporter
Ukraine’s PrivatBank files $3bn claim against PwC

Audit Ukraine’s PrivatBank files $3bn claim against PwC

2m Alia Shoaib, Reporter
Grant Thornton to exit FTSE 350 audit market, citing Big Four dominance

Audit Grant Thornton to exit FTSE 350 audit market, citing Big Four dominance

2m Alia Shoaib, Reporter
Big Four dominate FTSE 250 audit market in Q1 rankings

Audit Big Four dominate FTSE 250 audit market in Q1 rankings

3m Alia Shoaib, Reporter